Compaq's Cappellas on EU, Hewlett-Packard Bid (Transcript)
New York, Jan. 31, 2002 (Bloomberg) -- Michael Cappellas, chief executive of Compaq Computer Corp., talks with Bloomberg's David Evans about the European Union's clearance of Hewlett-Packard Co.'s planned purchase of Compaq and the outlook for the U.S. economy. They speak at the World Economic Forum.
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
EVANS: This is David Evans at Bloomberg News. We're speaking to Mike Cappellas, the CEO of Compaq Computer, at the World Economic Forum. And you got some good news today from the EU?
CAPPELLAS: Yes. Obviously we're pleased. It's a step along the process. You know, obviously we still are driving for a vote in March. And I thought that we had excellent dialogue on both sides, all the way leading up to it. And, of course we're pleased.
EVANS: Now, you were talking today about short-term versus long-term thinking and that's been part of your pitch in explaining why this merger is going to be a good idea.
Are you succeeding? And what do you think shareholders - or what have you been experiencing from shareholders in getting that message across?
CAPPELLAS: Well, one, I think we are at the stage where, it's what I call, we're getting to the serious investor with the serious depth of the analysis.
And so, I think what is always good, you know, these are very sophisticated investors, because we are going in and we're going through a, you know, not sort of superficial level but, you know, how do these products fit together? What is the go-to-market strategy, you know? Why does that differentiate you?
And, as importantly, because you've got to drive EPS growth here, too, is, you know, what are the plans on integration? Get it down to the specifics. Where do the numbers come from? When do they come from?
And I actually think, this is one of those stories, the more depth you tell it, the better it sounds. And I think that is resonating particularly well with the investors. And, you know, like all things, you know, you need to go in and answer their questions, you know, openly, honestly, and so they can understand the depth of the story.
EVANS: Do you feel the tide turning in your direction?
CAPPELLAS: I really do. I really do.
I'm much more confident now than I was a ways back. And I think, you know, it is because the story is getting down to the harder economic issues, the harder go-to-market issues. I also think that there has been some changes in the industry that are becoming evident, that sort of support the direction we're going.
You see some of the numbers about where open standards (ph) are going, where industry standard servers are going and some of the things happening in the industry, which tend to support some of the things that we had in the original justification.
EVANS: Right. And you were talking in your program today, about the likelihood of a second-half recovery and some of the factors that make you think that's likely?
CAPPELLAS: You know, I really do believe - and I'm going to answer this two ways.
One, I've obviously given guidance and I, you know, the other thing you said, is set expectations appropriately. So I have given guidance for the year which is for a relatively conservative position on revenue, but I do believe, the fundamentals are in fact there for a pretty strong second- half recovery, for a couple of reasons.
One, if you sort of look at the consensus out there of the GDP growth, you do see numbers of between 2.5, 3 percent, that's in the fourth quarter. And, two, I think there is huge pent-up demand for information technology, because we've obviously had a big burn-off.
So what it says is, that if the GDP turns, particularly in the U.S., that you will, in fact, see the pent-up demand for IT grow even faster. Again, that's a belief I have, but from my expectations, from the financial guidance, I'm being a little more conservative.
The second thing is, you know, we have - we've actually have seen Europe hang together, in terms of sort of normal seasonal demand a lot better than the U.S. I'll take one more and then I'm going to have to go.
EVANS: One more question, you did make reference to thinking there's going to be another round of cost cutting. Did you mean that industry-wide or did you mean that specifically, about your companies, after the merger?
CAPPELLAS: No. I think, actually one of the things we're particularly proud of is, last year, we took a huge amount of pain. I mean, our strategy was - not where we started the year, but certainly where we got to - was that we need to, you know, get our structural costs down, burn off inventory.
Well, the numbers were, you know, our structural costs Q4 this year versus Q4 last year is down $430 million. That's a quarterly number. And so, I think what we'll go forward is, that on a go-forward plan, we've taken a lot of pain, we have huge leverage in just applying, you know, where we're at on the go-forward model and we've certainly taken a lot of inventory out.
So, no, I was - it was a more broad generalization. And, in fact, I think we have been one of the more aggressive about getting ahead of it.
EVANS: So you think - you were referring to the industry as there being another round?
CAPPELLAS: Yes, I was actually talking about, actually, the global-U.S. economy, in that some companies have gotten out ahead of it and some industries have gotten out ahead of it (inaudible).
EVANS: So you've done your cutting?
CAPPELLAS: I believe we are in pretty good shape.
EVANS: OK. Thank you very much. We've been speaking to Mike Cappellas, the CEO of Compaq Computer, at the World Economic Forum in New York.
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