COMPAQ to shift emphasis on selling hardware, software and services bundled together

<br>HOUSTON (AP) _ Compaq Computer Corp., hurting financially from dwindling demand for computers, is changing its focus from being a leading provider of Internet equipment to what an internal company

Tuesday, June 26th 2001, 12:00 am

By: News On 6

HOUSTON (AP) _ Compaq Computer Corp., hurting financially from dwindling demand for computers, is changing its focus from being a leading provider of Internet equipment to what an internal company memo touts as ``the leading IT (information technology) solutions provider.''

Under the new strategy, Houston-based Compaq will emphasize sales of industry-specific packages of computers, software and services rather than computer hardware.

The idea, similar to one practiced at competitor IBM, is getting a tentative thumbs-up from some industry analysts.

``I see this as a great opportunity for Compaq _ if we step up to it,'' chief executive Michael D. Capellas said in the memo, which went out to employees June 12 and was first disclosed Monday by The Wall Street Journal. ``Volume products like Internet devices, traditional PCs and industry standard servers will continue to be highly strategic for Compaq, but customer value will be created above the core components in areas like solutions, software and services.''

Capellas said the goal is to increase company revenues from this new area from the current one-fifth to one-third within the next three to four years. This will require company growth of about 40 percent each year, done through internal growth, acquisitions and increased software sales.

About dlrs 500 million will be allocated to buying computer services companies.

Capellas said Compaq will be making dlrs 200 million worth of cuts each quarter in structural costs as well as other inventory reductions to implement the plan, which he hopes will be in place within the next six months. Compaq earlier this year announced dlrs 600 million in reductions.

The strategy calls for Compaq to focus on providing its services to such industries as telecommunications, health care and financial services.

Company officials said a separate announcement Monday detailing Compaq's shift in its high-end server production to Intel Corp.'s Itanium microprocessors and abandoning its own Alpha chip by 2004 is part of the new strategy.

Compaq, like other computer manufacturers, has been reeling from a decline in the PC marketplace. First-quarter profits were down 29 percent and its earlier announced cuts included layoffs 7,000 full-time employees.

Several brokerage firms recently slashed their outlook for Compaq's second quarter and entire year.

The strategy shift was not unexpected and could be a positive step for the company.

``I think it's a very good thing,'' said Brett Miller with A.G. Edwards and Sons, Inc. in St. Louis.

Miller said with its new IBM-like strategy, Compaq can compete with the rival computer giant.

``They are fully prepared to engage in that market,'' Miller said.

The success will depend on how well Compaq implements it, said Charles Wolf of Needham and Company Inc., of New York.

``It's taken them a long time to integrate (such plans) and the competitive climate has worsened,'' Wolf said. ``They haven't executed them that well over the past. They've been in a reactive mode for a long time. I think this is still a reactive strategy.''

Wolf said he doesn't believe the new strategy will mean a de-emphasis on sales of PCs and other hardware.

``I'm not sure if other companies will specifically be hurt by this strategy,'' he said. ``I think it's a good thing if they can implement it.''

Compaq stock closed up 40 cents to dlrs 13.90 on the New York Stock Exchange Monday.