CPQ developments:.."Company executives also have been on the road in recent weeks, meeting with analysts and investors to talk about Compaq's business -- and not the merger.
For example, Mary McDowell, senior vice president for Compaq's bread-and-butter business, the industry-standard server group, met with Merrill Lynch last week to talk about software for the company's Intel-based servers. The meeting didn't do much for the firm's rating of Compaq stock, which remains "neutral," but Merrill Lynch analyst Steven Fortuna had a few kind words to say in a research report for Compaq's ability to bring technologies to its servers.
Mark Lewis, vice president and general manager for Compaq's storage group, met with UBS Warburg last week, which led to analyst Don Young noting that Compaq has a better business model than storage industry giant EMC, as well as some advantages in cost and technology over Dell Computer Corp.
And briefings with analysts at Lehman Brothers and Goldman Sachs led to a few more positive comments, including comments that Compaq saw better-than-expected sales in October and November, particularly in Europe. Lehman raised its price target for the company's stock to $13 from $10, while Goldman Sachs raised its fourth-quarter revenue estimates slightly from $7.6 billion to $7.8 billion.
Even Executive Vice President Mike Winkler and board member Thomas Perkins have been made available to some media, where they've talked about good morale at the company despite the uncertainty of the merger.
While the analyst meetings very likely may be part of regularly scheduled briefings, any effort to paint a picture of a healthy, independent Compaq couldn't hurt right now, said Terry Shannon, a longtime computer industry observer and author of a Compaq users newsletter.
"When Compaq agreed to be acquired, it was an overt admission that it had issues it couldn't fix itself, so it will be perceived as weakened if the merger fails," said Shannon. "But it's not a death knell by any means."
Much of Compaq's technology, including its most powerful computers such as the Alpha, Himalaya and Proliant line of servers, were expected to survive the HP merger, so they will continue to be well received by customers if the merger does not happen.
And while Compaq's version of Unix -- the powerful and stable programming language that runs many large, mission-critical systems -- was expected to be put aside in favor of HP's version, many consider it superior to HP's, he said.
"They're very well positioned in a lot of their markets, but they've got to get their marketing and communications ducks in a row if they want to do a better job fighting on their own," Shannon said.
The company is also in relatively good shape financially, with about $3.9 billion in cash, and could get another $675 million in cash from HP should the company's board of directors cancel the deal prematurely.
Compaq also has successfully cut hundreds of millions in excess inventory and other costs in the past year. Job cuts that started in the spring amounted to about 7,800 worldwide by the beginning of December, with more than 2,000 jobs cut in Houston so far.
And Compaq hasn't stopped competing fiercely for sales since the merger was announced. An internal Compaq memo issued in October outlined ways for salespeople to counter alleged uses of "fear, uncertainty and disinformation" by HP's sales force when bidding for work against Compaq.
Some analysts aren't so sure about Compaq's prospects, however, or management's conviction about its own well-being. Some noted that before Friday's Packard Foundation vote, the company was willing to sell out when the company's shares were trading at a 52-week low.
U.S. Bancorp Piper Jaffray analyst Ashok Kumar said that Compaq's prospects as an independent company are dubious. He said Compaq will have trouble convincing customers about its enterprise product plans without the HP merger and will face increasing price competition from Dell.
Being acquired by a company other than HP is also somewhat unlikely. Shannon said the cultural and personal differences between Compaq and Sun Microsystems make that a questionable match, while Dell has no need to buy any of the businesses Compaq currently has.
Partnering with IBM, a combination many say has been considered informally by both before, could make sense on the technology side, Shannon said. Compaq's data-storage business, combined with its most powerful server systems, would give IBM a lock on a large segment of the business computing business, he said.
With or without a suitor, however, Compaq will have to make some huge changes to its business, particularly lessening its dependence on the viciously competitive personal computer business, Kumar said. |
