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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Dulane U. Ponder who wrote (11227)	12/14/1997 4:44:00 PM
From: VICTORIA GATE, MD	Read Replies (2) \| Respond to of 97611

Compaq Ups The Networking Ante (12/13/97; 12:02 p.m. EST) By Jeff Caruso and Mitch Wagner, Compaq's about to make good on its vow to break into networking's big leagues. Already a strong player in commodity items like NICs and modems, the vendor's entry into the market for higher-margin gear signals a potential price war in switching. That's always welcome news for IT managers. Known primarily for its PCs and servers, Compaq next month will bring out leading-edge networking equipment, including a Gigabit Ethernet switch with Layer 3 capabilities and 10/100-Mbps Ethernet connections. Simultaneously, Compaq will continue to up the ante in its traditional computer business. The company this week said it plans to introduce by June a four-way server based on Intel's Deschutes, the next version of the Pentium II processor that will outperform existing Intel-based platforms that have twice as many processors. The aggressive tactics are aimed at delivering on Compaq CEO Eckhard Pfeiffer's mandate to turn Compaq into a $50 billion company by 2000--a goal officials insist is within their grasp, even from today's $18 billion perch. In networking, Compaq so far has focused on commodity technologies, such as network interface cards, modems and Ethernet switches. But the Gigabit Ethernet switch will be announced before the standard is completed in March, and will support Layer 3 switching, which has only emerged during the past year. Compaq couldn't do it all on its own. It has licensed the Layer 3 switch technology from another vendor that officials won't name. Compaq has no qualms about forming partnerships; in fact, the company has already jointly developed a low-end router with Cisco. Compaq expects to become one of the top three vendors for the market segments in which it participates, said Alan Lutz, senior vice president and general manager of the communications products group at Compaq. In networking, vendors who aren't in the top three are small and have little influence, he said. And with so much switching functionality going to silicon, Compaq's in a good position. It claims to be Intel's largest chip customer. So if it can achieve the kind of price leadership with switches that it's earned in more commoditized markets, it could prove a formidable competitor. Further, Compaq will draw on the strength of its sales channel to mount this attack on the networking business. While most of its network equipment sells through networking reseller channels and direct sales, 40 percent is sold through PC reseller channels, and those PC resellers have a lot of sway. "Most of our customers go on our recommendation," said Brian Styles, vice president of Inteletek Inc., a reseller of Compaq networking gear. Compaq has targeted small users, who typically have inexpensive, simple networking needs. "If Compaq comes out with Gigabit Ethernet, that could be a clear signal that Compaq's ready to move up the food chain," said Sam Alunni, vice president of networking at Sterling Research. This strategy could accelerate the drop in pricing for this kind of equipment, much like Intel's entry into the Fast Ethernet space did earlier this year. Most networking vendors enjoy profit margins of about 70 percent, Lutz pointed out. "We're comfortable with margins in the mid-20s," he said. Meanwhile, Compaq will strengthen its hand in servers. The vendor has been sneering at competitors scrambling to roll out eight-way servers based on the Pentium Pro processor. Compaq's position has been that the current eight-way efforts are a waste of time. Like several other major PC vendors, Compaq is waiting on its eight-way server until late next year, when Corollary Inc., recently purchased by Intel, expects to introduce technology for marrying eight Deschutes chips in a box. This week, Compaq said it won't have to wait a full year to beat the existing eight-way servers. The company claims that its upcoming four-way server performs at 15,500 transactions per second, compared with 14,505 transactions per second for eight-way Pentium Pro processors using the leading technology for linking eight Pentium Pros in parallel, from Axil Computer Inc. Hewlett-Packard and Data General Corp. use the Axil technology in their servers, introduced last month, as does Axil. HP, the most recent to announce an Axil-based server, defended its choice of the technology. "I believe Compaq is somewhat on the defensive--they don't have eight-way today," said Steve Young, product marketing manager for the network server division at HP. "Customers need this technology today. They can't put their business needs on hold waiting for things that may or may not materialize," in the future. Like Compaq, HP plans a four-way Deschutes-based server in the first half of 1998 and an eight-way Deschutes-based server by year's end. David Pensak, senior research fellow and principal consultant in advanced computing technology for E. I. DuPont de Nemours Inc., said that even if the four-way Deschutes servers outperform on transaction processing, they might not do so on other applications that can be run across parallel CPUs to take advantage of eight processors, such as data mining, image analysis, some scientific calculations and neural networks. "In many cases, the eight-way processors will blow the doors off the four-ways six ways from Sunday," Pensak said.