Compaq's planned makeover won't be easy, analysts say
The Associated Press
HOUSTON (July 5, 2001 9:29 a.m. EDT) - Hurt by falling prices for personal computers, Compaq Computer Corp. is reshaping its huge global-services division to mimic IBM, the world's largest technology-services company.
Since the beginning of the year, Compaq has downplayed its PC business to focus more attention on selling powerful servers used to run Web sites and on technical services.
Chairman and chief executive Michael Capellas outlined a broad reorganization plan in a June memo. Capellas wants to bring Compaq Global Services and its 38,000 employees to the forefront in the company's work.
Compaq has earmarked $500 million to acquire smaller services firms and plans to go after clients in new industries such as retail, biotech and entertainment.
The recent moves are all designed to reduce the Houston-based company's reliance on PC sales and increase its revenue earned on services from 16 percent last year to about 33 percent.
Compaq's emphasis on services makes sense, analysts say. It means the company can offer customers more than just a server here and a few PCs there, but rather a wide range of tailored packages of hardware, software and services.
But the services push is risky, putting Compaq in head-to-head competition against IBM and other companies that have provided technology services for years.
"It's probably a good strategy, because with computer box makers, there will only continue to be diminished opportunities," said George Ball, chairman of Houston investment banking firm Sanders Morris Harris.
"But is it high risk? Yes. If they succeed, it will be a great move, but it will be absolutely crippling if they fail to execute."
The technical-services business has grown more complex in recent years, with customers looking to buy expertise, not just hardware.
"They want you to understand their business, to relate to what they're going through and help them make technology solve those problems," Ralph Lipizzi, vice president and general manager for Compaq Global Services in the south-central states, told the Houston Chronicle.
Compaq Global Services has had success selling to telecommunications and financial-services companies, officials said. Now Compaq wants to expand into retail, government, health care, biotech, entertainment and manufacturing.
Much of that expansion is planned to come through acquisitions. While Compaq wants to reduce its reliance on selling PCs, the technical-services business isn't immune to slowdowns either.
This week, IBM announced plans to cut 1,500 services workers after hiring as many as 10,000 workers in the first five months of the year.
Investors are taking a wait-and-see attitude on Compaq's makeover. "It's still a 'show-me' company," said Jim Cramer, a columnist and analyst for TheStreet.com. "I need to see something really good happen."
Discuss this story in our news forums:
Name: E-mail:
Comments are posted to a user forum, which can be accessed by other users. It is not a private communication. User agreement
AI
