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Compaq Steps Up E-Commerce Push Amid Woes

Technology: Targeting larger customers, computer maker recasts itself as one-stop shop for building Internet stores.

April 14, 1999|JOSEPH MENN | TIMES STAFF WRITER

HOUSTON — Compaq Computer, still reeling from its announcement that first-quarter profit will be less than half what Wall Street expected, tried on Tuesday to recast itself as a supermarket for companies that need equipment, software and services to do business over the Internet.

Chief Executive Eckhard Pfeiffer said the No. 1 maker of personal computers will refocus the service expertise it acquired in its purchase of Digital Equipment Corp. to help larger customers who need high-powered server computers and the know-how to build Web-based commerce. His comments were made at Compaq's Innovate Forum 99.

The effort "represents our commitment to provide the products, services and solutions that support continuous business operations," Pfeiffer said.

The announcement marks an acknowledgment by the computer maker that in order to return to historic growth rates, it will have to move well beyond traditional PCs for the home and office.

Compaq shares have fallen by more than half since late January, when it warned that sales to business customers were slowing.

Even analysts' revised profit estimates of 32 cents a share for the quarter ended March 31 far exceeded the 15 cents that Pfeiffer tersely projected Friday. After that announcement, Salomon Smith Barney analyst Richard Gardner chopped his target stock price for Compaq to $25 from $60.

The Houston-based company has been hammered by falling prices for desktop computers and heavy competition from direct sellers, particularly Gateway and Dell Computer. Not everyone is throwing in the towel, however. Hewlett-Packard, which also has been touting electronic-commerce consulting, said Tuesday that it believes its PC business will remain profitable for several years.

"It's clear that the money going forward is not going to be in the hardware arena," said analyst Matt Sargent of ZD Market Intelligence.

Compaq's beaten-down shares fell further Tuesday, losing 19 cents to close at $23.88 on the New York Stock Exchange. Hewlett-Packard jumped $2.44 to $70.81.

The new strategy has the advantage of emphasizing Compaq's higher-end, higher-profit servers, but it has some disadvantages as well: It relies on software from other companies, including Novell, Oracle and Microsoft, and it puts Compaq on a path behind IBM and others.

William Heil, general manager of worldwide sales, said sales of equipment and services to larger companies make up about 60% of Compaq's revenue and that the figure should rise under the new plan.

He argued that customers will choose to buy Compaq equipment bundled with software from other companies based on industry standards rather than buying from providers who might steer them to proprietary products.

"That is more beneficial than to put all their eggs in one basket," Heil said.

Pfeiffer's comments and the accompanying seminars were described as thin on content by some longtime Compaq employees. But those employees said they are glad to be aiming at customers with bigger budgets and to have beefed up the services and server business by buying Digital.

Compaq has the largest share of the market for Web servers and is rapidly expanding its sales of data storage products. It also has about 27,000 technicians around the world.

"We are unusually well-positioned for manageability, security and availability" with servers developed by Compaq, Digital and another Compaq acquisition, Tandem, Compaq Chief Technology Officer William Strecker said.

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