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

To: tonyt who wrote (15884)	2/1/1998 11:01:00 AM
From: tonyt	Respond to of 97611

Opps, that was last weeks Barron's. Heres this weeks: Bring on the Alka-Seltzer Compaq may be biting off too much with bid for Digital Equipment The stock chart says it all. For ailing, red-ink-bespattered Digital Equipment Compaq Computer's $9.6 billion bid last week was welcome news, and so DEC shares soared. But for Compaq itself, matters aren't quite so clear. In attempting to expand its "enterprise" computing operations, the world's No. 1 PC maker has taken on some very fierce rivals and, some investors feel, possibly may have bitten off more than it can easily digest. Compaq stock, a market star since we wrote about the company ("Still Shining," December 11, 1995), traded lower. Both DEC and Compaq felt their fit was such a natural that negotiations took only 12 days. For DEC, the merger removes what was a huge cloud darkening its future: customers' worries that DEC simply wouldn't be around too much longer. While DEC has other problems, not least a bloated staff twice the size of Compaq's but generating only half the revenues, it can now realistically hope for an order pickup. For Compaq, the move is consistent with a strategy of driving upward from the increasingly low-margin personal-computer business, where it battles the likes of Gateway 2000 and Dell. Compaq has been expanding into the market for pricier computer servers, the powerful machines that tie other PCs into networks. But Compaq has been finding it difficult to compete in the market for relatively expensive and powerful minicomputers and workstations used by large customers such as banks, brokerage houses, insurance companies and Internet service providers. With DEC in its fold, Compaq can provide a full range of products, from PCs up to what once were called mainframes. More buyers are turning to just one company for all their needs, if only because such one-stop shopping can help prevent costly and time-wasting compatibility problems. But to make the deal work, Compaq's officials, led by German-born CEO Eckhard Pfeiffer, will have to consolidate two companies with very different cultures. They'll also have to face aggressive competitors, including IBM and Hewlett-Packard, on a battlefield the big boys are very familiar with. Already, however, Compaq has triumphed over Big Blue in the PC market. And last week, the Texas-based computer maker announced a pact with Radio Shack, the electronics retail chain owned by Tandy. Starting immediately, Radio Shack will sell only Compaq PCs. Though Compaq machines are sold through a number of retailers, including Staples and OfficeMax, Dell and Gateway 2000 continue to offer their machines only via direct sales over the phone or the 'Net. At about 30, Compaq stock sports a price-earnings multiple close to the overall market's just-under-20, and about equal to its expected annual earnings growth pace of 20%. Because that leaves little room for disappointment and since there initially might be some tough sledding for the merged companies, now just might be a good time to take profits.