Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Satyr who wrote (16337)	2/3/1998 1:16:00 PM
From: Satyr	Respond to of 97611

Good steady pressure to the upside. It's doing better than I expected. If you can take out and close above the recent highs of 32 1/4 you should have a clear run at 36. I'm still not convinced but it is looking better.

To: Satyr who wrote (16337)	2/3/1998 1:38:00 PM
From: Satyr	Read Replies (4) \| Respond to of 97611

The other side of the coin. Compaq Buys DEC - Bad Idea! by Michael Griffis Dateline: 02/02/98 The Deal Compaq announced an agreement to buy DEC (Digital Equipment Corp.) for $9.6 billion in cash and stock. Compaq shares fell on the announcement, making the deal worth about $8.6 billion. DEC traded higher, up more than $10 on the news. DEC shares are now priced over $55, significantly higher than the recent lows near $25. Digital's shareholders will receive $30 in cash and approximately 0.945 shares of Compaq common stock for each share of Digital stock. Compaq will issue approximately 150 million shares of stock to complete the deal. Digital will then be a wholly owned subsidiary of Compaq. Investor's Business Daily reports that "Compaq Computer Corp.'s plan to buy Digital Equipment Corp. is getting good reviews from most analysts." But Standard & Poors has downgraded Compaq and placed the corporation on it's CreditWatch list. "A sustained decline in profitability and cash flow measures could lead to a downgrade." Standard and Poor's has it right. This is bad news for Compaq shareholders. A Little History DEC sold for $200 a share in 1987. They were the market leader in their niche, selling high performance systems for scientific and manufacturing applications. Like IBM, DEC had a worldwide sales and support staff to sell and implement complete solutions for their customers. But DEC and IBM were not actual competitors. Big Blue's focus had always been corporate mainframes. DEC's focus was high speed specialty systems. DEC coined the name mini-computer for their systems, and profited handsomely by selling complete solutions. However, the VAX computer was not DEC's only strength. Their software, especially the VMS operating system, was elegant and well designed. It was perfectly suited to high speed, real-time applications. UNIX is an open-architecture operating system designed and developed by AT&T. It was first made available under license in the late 1960's. By the late 1980s, UNIX was far from state-of-the-art. But it was cheap and offered the allure of cross-platform operability. VMS was (and is) a superior operating system, especially for real-time manufacturing and scientific applications. To illustrate with just one example, UNIX did not support real time priority interrupts (it does now). Without real-time interrupts, many high-speed manufacturing and scientific applications could not work. The decline began when DEC succumbed to their customer's call for open architecture computers. The VAX computer was a good machine, but customers wanted it to support UNIX. UNIX offered no differentiation for DEC's VAX hardware from other platforms. It was just another UNIX box. DEC dedicated expensive resources to implement UNIX on VAX computers, and to make UNIX useable in real time applications. Unfortunately, customers were unwilling to pay a premium for VAX hardware running UNIX. DEC was unable to price their hardware competitively. DEC's sales and support staff contributed to high overhead expenses. In addition, supporting both UNIX and VMS proved very costly. Once DEC transitioned their business away from their competitive strength, they were unable to compete effectively. They were not the low cost hardware manufacturer, and were unable to compete on price alone. It was the beginning of their decline. Match Made In Heaven? Compaq is about to make the same mistake. Compaq got its start selling clones of IBMs personal computer. Their strength was their cost structure. They were (and are) competent manufacturers, able to keep manufacturing costs low. Sales and support staff was (and is) very small compared to IBM's. They priced their product competitively. Now Compaq has purchased what's left of DEC: essentially they've bought a sales and support staff. It's a very large sales and support staff, which will be difficult for Compaq to digest. Compaq is abandoning their competitive strength, changing their corporate strategy. Compaq's cost of operations will rise, margins will be lower, and profits will fall. This marriage is a mistake on the grandest scale. I say sell Compaq. It always a good idea to see both sides of a situation.