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

To: Dulane U. Ponder who wrote (22160)	3/17/1998 11:23:00 AM
From: rudedog	Respond to of 97611

Dulane - CPQ's consumer business is like a company within a company. They have their own distribution which is separate from the rest of Compaq, they have their own manufacturing, and they use very different technology. The top management of the consumer group has been saying publicly for more than a year that they want to drive to new price points, and that sub-1K is only the beginning. Viewed as a stand-alone company, Consumer group would rank as a pretty successful startup on almost any measure - market penetration, growth, brand awareness. They are in a very different game than the rest of CPQ. Your statement about 'reinventing" is exactly right for the rest of CPQ. Since the announcement of the Tandem merger, CPQ management has articulated a strategy to actively move upstream to take the high end market from HP, Sun and IBM. The Tandem and DEC acquisitions provide CPQ with a large resource base which covers the whole range from handheld computers to non-stop mainframes (Tandem Himalaya). Many on this thread have provided well researched and thoughtful comments on the potential value of this strategy. I believe that if CPQ management can digest these acquisitions they will move into a space where they have significant advantages against their high end competitors - CPQ has a 'can do' low cost business model in comparison to IBM/HWP/Sun and can comfortably undercut those companies in a market space estimated at more than $100B. CPQ can do very well on high-end margins in the 40-50% range while their high end competition has built a model which requires margins in the 60-70% range. But getting all of the acquisition pieces to play together is a big 'IF'. Tandem was not really very sick at the time of the acquisition - they had shed their money-losing UB subsidiary, turned around the non-stop business, and built a strong NT alliance with MS. Also Tandem's business units were left more or less intact since they had a very focused product line and market segment. DEC is a different story. DEC had achieved minimal business stability at the cost of much of their historical business base. They sold off significant portions of their software business to Oracle and others. They sold their CPU fabrication to Intel. They lost much of the AltaVista team when the plan to take ALtaVista public cratered. Finally, DEC has nearly 60,000 employees who come from a culture where success in the internal politics was much more important than success in the marketplace. So there will be a huge influx of people who need to rethink their whole idea of how to do business if they are to fit into the Compaq culture. As opposed to some on this thread (including my thoughtful correspondent Jason) who think that CPQ management has made a serious miss-step in the last year, I think that Pfeiffer, Mason and Rose have an insightful view of where CPQ needs to go and the will to get there. Competing on the low end is a losing strategy for the main part of CPQ (let Consumer group fight that battle), and CPQ management has chosen to tackle the problems head on, sooner rather than later. Pfeiffer has shown that he is not afraid to take big risks to go for the brass ring, and his track record has been pretty spectacular - look at CPQ press releases on goals dating back to 1991 and then look at their record of achieving those goals, they have consistently beaten their most aggressive targets. Having said that, I think that the problems we have been seeing for the last few months are a symptom of a management structure which is hard pressed to cover all of the territory they have moved into. They surely could have done a better job of managing their inventory in 3Q and 4Q. Some think that Roel Pieper and Jim Schraith left in January because they were responsible for the channel stuffing, but it is just as likely that they opposed this move and got rolled over by the top guys, and left in protest. The next few months will show whether CPQ management has the bandwidth and vision to get the company back on track and develop a dominant position in the high end. I am betting with my wallet that they will, but there is a lot of risk in the picture. But then again, high risk = high potential reward...