Compaq's makeover: is beauty more than skin deep?

Known traditionally as a manufacturer of PCs, Compaq now touts itself as an innovative internet company. That's hardly a unique claim these days, but the company is counting on technology - often from past acquisitions - to drive forward the next phase of its growth.

Since the departure of Eckhard Pfeiffer and the installation, last summer, of new president and CEO, Michael Capellas, the company has been very vocal with its NonStop strategy - aiming to provide customers with the edge needed in the 24 hour-a-day, global business environment.

The NonStop strategy is built on technology from Tandem, the well-regarded server company Compaq bought in the summer of 1997.

This drive was swiftly followed by a claim that Compaq is 'Everything to the Internet'. This proclamation is supported by a business-to-business (B2B) buying solution for customers based on Commerce One's MarketSite global trading portal. Online purchasing and auctions are included in the offering.

Recent financial figures have gone a long way to vindicate the choice of Capellas at the helm and this new internet focus. Results for the second quarter of 2000 show revenues up from $9.4bn to $10.1bn. Net income was $387m compared to a loss of $184m for the same period a year earlier.

Comparisons with rival Dell are inevitable, if only because it has been making the web the mainstay of its business for some time.

Dell claims it is in the perfect position to provide ecommerce offerings as it is, in its view, such a model ebusiness.

But for vendors like Compaq and Dell, ecommerce is more than just selling a computer online - it's about giving customers the ability to improve their business operations and so their bottom lines.

James Griffiths, marketing manager for client systems and online business at Dell, said: "We invest in companies at the leading edge of ecommerce, such as Ariba, and tie them in to what we do on a daily basis, allowing our customers to build the infrastructure for their own ecommerce strategy."

But while internet-with-everything is a common route for large IT vendors, the Digital and Tandem acquisitions still raise as many questions as they provide answers.

During a recent appearance on silicon.com (http://www.silicon.com/a36477 ), Joe McNally, UK chairman of Compaq, spoke about how the Digital deal is still proving a culture shock for both camps.

He said: "This was billed as the largest acquisition in the history of the computer industry. We think we have got our integration working - other than the fact it is taking us longer to bring the cultures together than expected."

Rob Hailstone, analyst at IDC, believes that another key issue in determining Compaq's future prosperity is the Aplha chip - and so far, he thinks the company has failed to capitalise on the technology it inheritied from Digital.

He said: "Compaq had to persuade the industry there is a future for Alpha but they never got the message through."

Compaq recently gave the chip a boost with the launch of its Wildfire range of Alpha servers (http://www.silicon.com/a37496 ).

Gary Kerrison, Alpha server product marketing manager for UK and Ireland at Compaq, said: "In the high-end enterprise space, Alpha will succeed. The roadmap has been drawn up until 2012 and I challenge anyone else in the industry to provide a roadmap going that far."

But will the move to the internet as well as server and other technology from acquisitions mean less of an emphasis on Compaq's traditional area of strength - the PC market?

Competitors are proving tough. Compaq has lost the business PC top spots in the US and the UK to Dell, and even the retail number one position in the US to HP.

But Hailstone doesn't see this as a problem. He said: "Why bust a gut to be number one in a dying market? What Compaq is aiming at is the number one slot in the web-device, non-PC market."

Things have picked up for Compaq since Capellas was given the nod. But while the Tandem and Digital deals have their good and bad sides, they are potentially less critical than risking bread and butter income from the PC market.

Dell and many others don't think the PC will stop being the main device for accessing the internet for some years, but whether Capellas and co will be brave enough to stick their necks out and decide otherwise is yet to be seen.