This article on CPQ's networking activities is worth a read:
1/5/98 CommunicationsWeek 8
1998 WL 2379648
InternetWeek
Copyright 1998 CMP Publications Inc.
Monday, January 5, 1998
696
News & Analysis
Outlook 1998
Compaq Now Marching To A Networking Drum
Matthew Friedman
Having spent the last year assembling its forces, Compaq is ready to
plant its flag on networking turf.
Compaq wants to provide end-to-end networking solutions, from modems
to servers to access switches, offering IT managers the simplicity and
reliability of a single vendor. But one question remains: To what degree
does desktop dominance translate to the networking invincibility
envisioned by Compaq's generals?
"We look at markets that are expanding quickly and make a decision on
whether to enter or not," said Alan Lutz, senior vice president and
general manager of Compaq's communications products group. "If we don't
think we can dominate it, then we look for something else. We think we
can dominate this space."
Using market power on the computing side isn't unique to Compaq.
Hewlett-Packard and Intel have used enterprise switches and network
interface cards as stepping stones to the networking market, and to good
effect. Intel, for example, challenged 3Com's dominance in the Ethernet
NIC market last year and is now a price leader in this space.
Intel, HP and Compaq have another dynamic working in their favor: a
low-cost and plentiful supply of custom ASICs that enable them to embed
all kinds of networking functions into silicon. Compaq is Intel's third
largest customer, according to Lutz, and that gives Compaq volume
pricing advantages that networking vendors probably can't match.
Taking a page from the fast- food industry, Compaq is seeking to
establish itself by offering basic hardware like NICs as a side-order
with its servers and workstations, rather than positioning them as
discrete units in a network architecture. Compaq wants IT managers to
purchase NICs as an obvious complement to systems, hoping that they'll
buy the whole package, right down to the access switch.
"I've told our sales force to remember one thing-burgers and fries,"
Lutz said. "Every time you sell the burger order, pull the fries order.
That's NICs and modems."
Many IT managers are trying to digest that idea. For Chris Dilworth,
president and CEO of Arena Communications, an Internet solutions and
Web-design company, the fast-food approach is neither practical nor
desirable.
"For someone who just wants to put up some Web sites, I can see how an
end-to-end package might be appealing," he said. "But our expectations
are too high to be fulfilled by a single vendor."
The big network operators have their own misgivings. Accustomed to
putting every potential purchase through its paces on the test bench,
Klaus Etzel, TCG/Cerfnet's vice president for business development, has
reservations about being locked into a single solution, even if it comes
with a smaller price tag.
"If you run a big network, like a backbone network, then you need to
have the best possible hardware, no matter what the cost," Etzel said.
"In that context a complete package from a single vendor isn't very
tempting. We need the flexibility to put the right technology at the
right place in the network."
Indeed, aside from the end-to-end package the Compaq offer is somewhat
limited, said Virginia Brooks, an analyst at the Aberdeen Group. Its
expertise in networking hardware was built on a series of corporate
acquisitions earlier in 1997. By absorbing NIC vendor Thomas Conrad
Corp., Networth Inc.'s hub business, and access-switch maker Microcom
Inc., Compaq evidently believed that it had acquired instant networking
expertise. Brooks said Compaq is wrong.
"Thomas Conrad was being sold in a fire sale when Compaq got it;
Microcom, too. Neither was a first-tier acquisition-they're fading stars
that haven't been in their heyday for quite a while," Brooks said. "But
if you're only shoveling product out the door in a box, then these
acquisitions make sense."
However, Lutz argues that the acquisitions gave Compaq an important
foundation in networking and opened the door to an important alliance
with Intel to develop high-performance networking products. "Microcom
was actually undervalued when we acquired it and Thomas Conrad got us
into the NIC space," he said. "The NIC business has grown nicely. Our
presence in that space got the attention of Intel, and allowed us to do
the alliance."
Brooks is quick to point out that while Intel has had some success in
the NIC space, coming second to market leader 3Com, and
Hewlett-Packard's offerings have attracted the interest of its
established customer base, systems manufacturers have yet to take the
networking hardware market by storm. Indeed, she said that,
collectively, they fall into the small slice of the pie labeled "other,"
and doubts that will change any time soon.
"What they're looking at in terms of market share is what they can
nibble away from the established players in the space," Brooks said.
"What they're trying to do is like tapping someone on the shoulder and
stealing his lunch when he's not looking."
Word Count: 790
1/5/98 COMMWK 8
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