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

To: Ibexx who wrote (15072)	1/26/1998 8:18:00 PM
From: Robert Graham	Read Replies (5) \| Respond to of 97611

I have not seen many people that I have come across who has the "big picture" perspective here on what CPQ is doing in the pursuit of their goals, which has lead to thier purachse of comapnies like Tandem and DEC. This reminds me of the time Novell became a bit taken by their success and unusual amounts of cash they were sitting on where they ended up purchasing the rights to AT&T Unix from Bell Labs. This was crazy, the purchase of an OS that is key to the marketplace just because it had built in networking capability they could build off of. In the end, they simply did not know what to do with this OS, so they sold it off at a HUGE. Since that time, Novell has been wandering aimlessly. As soon as Novell purchased AT&T UNIX, thisis what I predicted would happen due to the lack of focus this purchase decision demostrated. That is not to speak of the damage done to the operating system's development (or lack thereof) during this period of time. Their puchase of the OS demostrated lack of perspective and focus in their business which happens to many business that have met with initially a large measure of financial success. The UNIX OS drew Novell into technological areas and marketplaces that were unfamilliar to them and required a very large comittment on their part that they were not available to make. This is the extra "cost" of their purchase that those confused and misguided executives at Novell did not consider. You do not go about product intergation by purchasing up companies that at the most are preipherally related to your line of business, and do this at huge financial costs. Most every single company that I have seen do this has failed. DEC is in the business of minicompuers and minicomputer operating systems and networking for their minicomputer systems. Their PC workstation business along with their PC networking is only one smaller component of the entire business that was designed to facilitate their minicomputer focus. ANd later their minicomputers became just avenues for their software sales which became the new focus of the business. They do have good CPU technology, but their Alpha chips have not been able to penetrate the marketplace except for special uses. Of course it helps if the customer they are marketing to is an engineering company that already utilizes their minicmputers. Tandem has had a major part of the banking business due to their fault tolerant computer designs. The engineering and technology that goes into this type of computer is substantially different from that of the Compaq PC, and is developed for a very different market place. Engineering costs alone would be substantially more than that of developing PC clones and related technology. I have heard of companies that work from a central plan and move outwards to more peripherally related technologies and markets, like a company that produces minicomputers that then networks them together that then developes the technology to internetwork disimular CPU platforms together that then decides to produce workstations. In this case, the primary focus of the company would still be minicomputers and the leverage this sale can have for their other associated products. But I have never come across a company that does this back asswards: develop PCs that cannot even pass as large workstations that then moves into building minicomputers and its assorted related technologies and products and services. This approach to business will at the very least end up as a huge learning curve, a substantial period of time reorginizing the business to be productive and hopefully reestablish a focus, and an initial very costly purchase that goes well beyond the purchase price of the aquasitions. Watch Compaqs debt go up. In this market, they may have trouble receiving a high value for their shares in a primary offering. Watch Compaq become internally focused. First, this will result in costs going up substantially. Next, the effect will be on sales since this self-preoccupation will allow them to take their focus off of their customer. So after the initial purchase is worked into the financials, cash flow is likely to go down from there. This then can lead to a costly reorginization and promises by he management to refocus their efforts on their customer and generating profit, which is different form a focus strictly on revenue and the building of empires. I see this company caught up in their incredible success. This phase that many successful business go through can be very costly indeed, and can very well end up making or breaking the future of the business. The closest comparison that I can think of is when SUNW decided to enter the minicomputer marketplace. They did not have one clue as to what they were getting involved in. For one thing, they did not understand the need for 24-hour a day serice with a 3 hour or less repsonse time. Secind, they woefully underestimated the I/O processing needs of businesses, which is very different from the engineering side of the business. I had a client test their new minicomputer for their uses, the the I/O came in less than half as capable compared to their competitors. Evidently thier focus on what makes their business successful was lost here which ended up in a costly and poorly researched effort in their ill-conceived attempt at entering a new market. After all, those businesses use computers too, right? So what can be the difference...or so they thought. Hmm...I wonder if I should get into my abestos underwear right about now. ;) Any "freindly" comments? Bob Graham

To: Ibexx who wrote (15072)	1/26/1998 9:38:00 PM
From: Joey Smith	Read Replies (1) \| Respond to of 97611

Ibexx, I think this deal makes CPQ MORE DEPENDENT on Intel chips than ever before...Slot II variants, Merced in 1999...I don't think CPQ will be pushing Alpha, rather trying to have it die off quietly.. joey