"NEW COMPAQ PREPS FOR A NET FUTURE" September 23, 1998
'New' Compaq Preps For A Net Future
By Charles Babcock
Compaq Computer Corp. (www.compaq.com) inherited the
site when it acquired Digital Equipment Corp. But, like the
Digital purchase itself, the Palo Alto Internet Exchange is
a sign that Compaq is determined to change from a
supplier of desktop and portable computers into a broad
supplier of systems for enterprises. And no system is
more complex than the Internet.
"Across Compaq, there's an enormous amount of work
under way to deliver the value of Internet technologies,"
said Mark Linesch, director of Internet business solutions,
in his Houston office. "This is a new Compaq."
How New?
Some changes are superficial at the nearly $40 billion
company. Rod Schrock, Compaq's senior vice president of
consumer products, said Compaq recently started
shipping PCs with three extra keys on the keyboard. One
is for connecting to the Net, another for searching on it --
taking a user directly to Compaq's AltaVista search site --
and one for electronic commerce. Each button has the
programming behind it needed to carry out simple
functions, such as triggering the dial-up sequence to
connect to an Internet service provider.
But other changes are more far-reaching. Compaq is
partnering with Microsoft Corp. to give Windows NT the
ability to spread workloads across multiple servers and
keep systems running even if one fails, based on
technologies it acquired with Digital (www.digital.com) and
Tandem Computers Inc. NT systems also are being
pressed into service on World Wide Web sites, because
they are relatively cheap and easier to understand and,
increasingly, can be used for the stressful demands of
e-commerce.
Figures from San Jose market researcher Dataquest Inc.
show Compaq is by far the strongest vendor of NT server
systems, having shipped 29 percent of them last year,
with Dell Computer Corp. and Hewlett-Packard Co. tied for
second at a distant 9 percent each. Add in Digital's share,
and Compaq commands 36 percent of the NT server
market.
Which puts Compaq squarely in the middle of one of the
fundamental changes in Net computing. Simply put, NT is
finding broad acceptance on the Web and throughout
business, according to Dataquest (www.dataquest.com).
Last year, NT accounted for 48 percent of all server
systems shipped in 1997 for all business purposes,
compared with 19 percent for Unix, its figures indicate.
Today's transition to an Internet economy means Web site
systems must be reliable and handle rapidly increasing
numbers of users. Such "scalability" has been largely the
turf of the IBM Corp. mainframe world. PC servers
frequently prove clumsy, limping whenever they get loaded
down with applications and complex transactions.
Compaq sees the need to transition PC technologies into
larger systems for the Web, both Unix and NT. The need
is so pressing, said Senior Vice President John Rose, that
the company is investing heavily in a configuration system
it calls activeAnswers. This online guide advises
customers on how to build e-commerce and Web site
systems with its hardware. ActiveAnswers is meant to
illustrate the right way to deploy systems that can spread
demand across a group of servers, pass tasks from one
server to another in case of failure and manage growing
amounts of data generated by Web activity.
In effect, Compaq wants to be an Internet computing
services company, helping corporations figure out the right
system for their Web site needs and then coordinating the
purchase of the system from Compaq. "It's taking on the
Hewlett-Packard-like role of trusted adviser," said David
Wu, securities analyst in San Francisco for Dutch bank
ABN Amro (www.abnamro.com).
Virtually unnoticed, Compaq has shifted gears, akin to
Microsoft in late 1994, when it recognized the effect the
Net would have on its business.
You've Come A Long Way, Baby
"If you looked at a stake driven into the ground where
Compaq was a year ago vs. where it is today, it would be
on a different continent," said Zona Research Inc. Vice
President Greg Blatnik.
At the same time, it's not exactly clear where Compaq is
headed. It is still trying to digest the acquisitions of
Tandem (www.tandem.com) and Digital, two companies
that developed and marketed sophisticated computing
systems. Compaq officials appear to be sorting out the
variety of technologies, from desktop to high-end systems,
it now possesses.
"Compaq is still not a name that pops into my mind as an
Internet company," said Dan Kunstler, a J.P. Morgan
Securities Inc. analyst. It's not clear that all the parts
relate to each other or whether they will further Compaq's
transition into a more Internet-oriented firm, he added.
"There's still a lot of knitting to do."
The knitting could start with Compaq's biggest Internet
brand name, AltaVista (www.altavista.com), which intends
to become the third most visited site on the Internet. But it
is likely to remain a consumer site, while Compaq's
underlying Internet thrust will be to become a soup-to-nuts
supplier of expandable Web site and e-commerce
systems to corporations.
Whatever transition it's making, clearly it can't tarry.
Compaq is under pressure in its traditional line of
business. Analysts said Dell (www.dell.com) and Gateway
2000 Inc. have focused more exclusively on the process of
selling computers online. Dell would have displaced
Compaq from its position as the No. 1 PC supplier earlier
this year if Compaq hadn't added sales from Digital's PC
unit to its total. In the past three months, venture
capital-financed newcomers, such as iDot.com Inc.
(www.idot.com), have threatened to reduce margins further
by using a small number of people to operate what is
exclusively an online PC sales business.
In effect, Compaq is splitting itself away from other PC
suppliers, whose business plans call for selling more and
more cheap desktop machines. The difference between
Compaq and Dell is that "Michael Dell doesn't want to be
the next Hewlett-Packard," said ABN Amro's Wu. A year
from now, "Compaq will look just like Hewlett-Packard,
minus the printer business."
Does that mean Compaq, which made its reputation as a
supplier of hardware based on Intel Corp. microprocessors,
will invest heavily in an alternative architecture, Digital's
64-bit Alpha processor? After the Digital acquisition was
completed, Compaq officials said Alpha offered a
complementary high-end offering to Compaq's main
product lines.
Once Intel's (www.intel.com) 64-bit Merced processor
becomes available in its second or third generation,
perhaps in 2001 or 2002, Compaq will face a dilemma over
whether to continue producing Alpha or line up its horses
behind Merced, said Linley Gwennap, editorial director of
the Microprocessor Report (www.mpronline.com).
Compaq's Rose said the Digital technologies were
necessary to give Compaq the tools it needs to become
an Internet system supply company. With Unix part of the
infrastructure of larger Web sites, Compaq gained a
modern 64-bit Unix operating system via Digital that
already is used in at least half of the 10 largest Web sites.
But Compaq's apparent commitment to services, Alpha,
Digital Unix and other high-end technologies could run
afoul of its ability to support such a broad range of options
if the PC market goes sour before the company has gone
very far in its transition.
That's no idle concern. Giga Information Group Inc. analyst
Rob Enderle foresees a "collapse coming in the fourth
quarter of 1999" in sales of PCs in the home market and
"a decline" in the corporate market. Customers are going
to gravitate to the lower-priced models, squeezing
margins, and "there's a good chance we'll have a
year-2000 panic" next year, with buyers holding off on
purchase decisions.
"You want to be lean and mean going into 1999, and Dell
is set up to do that. IDot [a 3-month-old online PC
supplier] is unbelievably lean. Compaq has got an awful lot
of people and technology," Enderle said.
But Rose and others said Compaq is well down the road to
transitioning into a full-range supplier, with more of its
business conducted over the Internet. Compaq already
leads in selling Intel-based servers for implementing SAP
AG's R/3 enterprise software, and it plans to offer
knowledge in configuring R/3 servers through
activeAnswers. The service will be reserved for subscribers
with a price tag of $1,695 per year.
The approach, said ABN Amro's Wu, will allow Compaq
customers to help themselves online to packaging
services they used to get from HP (www.hp.com) or IBM
(www.ibm.com).
Furthermore, when it comes to the warring camps of
Windows NT and Unix, Compaq stands with a foot firmly
planted in both.
Listening to the experts argue over what Compaq might
do, one might conclude that Compaq's real strategy is to
hedge its bets. If Intel's 64-bit Merced processor is late,
Compaq will promote 64-bit Alpha-based hardware. If the
acceptance of Merced appears inexorable, Compaq will
scuttle Alpha and go with Merced.
Compaq will let the marketplace decide which of its
technologies it likes and discard those that don't fit with
the consumers' tastes or the needs of moving business to
the Internet. With larger, more reliable systems in
demand, Compaq -- buttressed by the ability to place
switches that can handle 6.3 million connections per
second in places like the Palo Alto Internet Exchange --
should find itself picking up ground on competitors with
only one alternative to offer, such as desktops, or servers
that run only Unix or only NT, said the Microprocessor
Report's Gwennap.
"Compaq/Digital will only get stronger as time moves on,"
he said.
The Bottom Line
There's a quiet revolution under way at Compaq Computer
Corp. The No. 1 PC supplier is steadily shifting its
corporate identity, products and services line to the
Internet.
ActiveAnswers man John Rose |
