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

To: rupert1 who wrote (60430)	5/4/1999 3:33:00 AM
From: rupert1	Read Replies (3) \| Respond to of 97611

Aitch: I found your posting of another ML/Milunovich analysis of YK2 and Internet spending on another thread. I know that some particpants here have views on it. My own view is that the superficial nature of the Milunovich survey goes some way to explaining the superficial nature of his results. _________________________ Corporate Buyers' Survey 08:27am EDT 30-Apr-99 Merrill Lynch (S.Milunovich) Fundamental Highlights: o We expect one-third of users will slow IT spending in the second half but less than 20% will lockdown in 4Q. PC spending should be slightly aided by Y2K. o Internet spending is in its infancy, but users expect the Internet to benefit computing demand. We believe IBM, Microsoft, and Sun are best positioned as Internet vendors. o CIOs think the Sun/AOL alliance should result in a successful e-commerce solution. Sun is gaining share at customer sites. o IBM is looking good. Almost 70% expect IBM to be a leader in Internet computing, account momentum is strong, and users are buying more software. o HP and Compaq are lagging with less customer momentum. Compaq still has the opportunity to be recognized as an enterprise computing company though. Questions And Answers Y2K Spending Will you lockdown spending in the fourth quarter, that is, spend very little on IT products? Yes 16% No 80 Unsure 4 Will second half spending slow a lot, a little, or not at all? A lot 7% A little 27 Not at all 60 Don't know 6 Y2K should slow but not stop second-half spending. To say there will be no impact is illogical, but we don't see nuclear winter either. Less than 20% said they will lockdown, which is reasonably bullish, and only 7% said spending would slow a lot. Most vendors have remained sanguine, from BMC to EMC to IBM. Will you spend more, the same, or less on PCs than you would otherwise? More 33% Same 45 Less 22 Y2K should be modestly positive for PC spending this year. Dell and Compaq seem to be backing off the view that Y2K will accelerate PC spending, taking a more neutral stance. Certainly 1Q didn't benefit as hoped. Most corporations are on a three-year upgrade cycle that Y2K hasn't dramatically affected. Which investments do you feel the need to keep making? ERP (ironically), networking, and hardware were mentioned most frequently. Other responses included: "Whatever it takes to do business" "Web-enabled applications" "Upgrades, maintenance and training" Internet What percent of your IT budget is spent on Internet-related activities? Average: 5% How about in two years? Average: 12% Spending on Internet related infrastructure appears modest currently but could better than double as a percent of the IT budget in a couple years. The numbers seem low, but remember that people and maintenance costs are large portions of IT budgets. We have argued that the Internet computing trend is in its infancy, which augers well for our infrastructure plays. How is your company using Internet-related technologies? 1. Intranet/internal communications 2. Customer communications 3. Information resource 4. Business-to-business commerce Rank which vendors you think are best positioned to help your Internet computing needs. 1. None 2. IBM 3. Microsoft 4. Sun Microsystems 5. Hewlett-Packard Nearly 30% of respondents cited no vendor as best positioned, which indicates that Internet computing remains an open game. IBM and Microsoft were ahead of the rest by a better than 2-to-1 margin. IBM was praised for its end-to-end solutions while Microsoft captured significant mindshare with its browser. We think 1Q results showed that IBM is getting a tangible benefit from the Internet. On a scale of 1-10, how important is the Internet to your company's top management? Average: 6.5 We're seeing the rating move up over time though there's still room for further recognition. Few industries won't be impacted as highlighted by the Merrill Lynch report "E-commerce: Virtually Here." Not everyone gets it. One CIO said his boss gets upset if they can't get their baseball games in the Net. Do you think the Internet will drive computer demand the next few years? Yes 84% No 6 Not sure 10 Vendor Momentum Do you think the AOL/Sun/Netscape combination will provide a successful e-commerce solution? Yes 47% No 16 Possibly 37 Is Sun gaining or losing momentum at your account? Gaining 31% Losing 8 No change 61 Users give the alliance the benefit of the doubt "if they can avoid killing each other" as one CIO put it. Sun/AOL hopes to be one of a few end-to-end e-commerce solutions. Sun is gaining share thanks to its Internet aura and improved enterprise product line. The AOL linkup gives Sun more boardroom visibility. Do you believe that IBM will be a leader in Internet computing? Yes 68% No 14 Possibly 18 Is IBM gaining or losing momentum in your account? Gaining 43% Losing 8 No change 49 Are you buying more or less of IBM software? More 23% Less 10 Stable 50 Do not use 17 IBM is looking good. The e-business ad campaign is starting to turn into business. IBM is a trusted name and has increasing experience helping companies get on the Internet. IBM appears to be gaining user recognition as fast as Sun. This perceptual shift regarding how customers view IBM has been consistently in our surveys the past four years. Also note the interest in IBM software, especially middleware such as DB2 and MQ Series messaging. Users mentioned that IBM was weakest in PCs. Do you think HP will be a key provider of Internet technologies? Yes 20% No 49 Don't know 31 Is HP gaining or losing momentum at your account in computers? Gaining 25% Losing 29 No change 46 On the other hand, HP has a lot of work to do. It doesn't have the Internet aura; it's not clear how much the e-services ads will help since they're a bit me-too. Momentum with customers has slowed as well-one person said "you mean they do something other than printers?" Is Compaq gaining or losing momentum at your account? Gaining 31% Losing 33 No change 36 Is Compaq successfully becoming an enterprise player? Yes 41% No 37 Possibly 22 Which will be more successful? 41% Compaq moving into enterprise computing by acquisition 47% Dell's virtual approach of partnering with product and services companies Compaq's results are similar to HP's. Account momentum has stalled. Yet many think Compaq has a shot at being an enterprise player. We think the company needs to better articulate its differentiation. We prefer Dell's move into the enterprise through partnering. Information over infrastructure, as Michael Dell would stay. Still, there may be limitations to Dell's approach, which Compaq should be pointing out.