Compaq Turns on New Services Initiative

By eweek  |  Posted 2001-07-23

Compaq Computer Corp. last week began its newest push to become a larger player in the service arena by introducing a suite of hardware service programs aimed at decreasing its reliance on PC and server sales.

But despite the unveiling of its Computing on Demand initiative, the embattled company still must overcome the perception that it is strictly a hardware maker scrambling to find the right formula in difficult economic times.

"I dont view companies like Compaq, Hewlett-Packard [Co.] and Dell [Computer Corp.] as intellectual solution providers," said Matt Merrick, executive vice president of IT at Merrick Printing Co., in Louisville, Ky. "I just look to them for hardware and support for that hardware."

Nevertheless, Compaqs service business is substantial, accounting for a fifth of Compaqs total revenue. In fact, more than 55 percent of its 68,000 employees work in the service division. Compaqs service business burgeoned when it acquired Digital Equipment Corp. and its 23,000 service workers in 1998.

Yet, despite its growth, the division continues to be overshadowed by Compaqs core hardware business, which still accounts for the bulk of its revenue.

Still, Chairman and CEO Michael Capellas is aiming for an aggressive per-year growth in services of 40 percent. The company has been on the prowl for consulting and service companies to buy. It recently lost out on a bid for Proxicom Inc. but is closing in on another candidate, officials from the divisions Stow, Mass., facility said recently.

Capellas decision comes as the computer maker struggles with sagging revenues. Forced to look elsewhere for earnings, Compaq is again hoping to take advantage of the long-viewed potential moneymaker it acquired from Digital, said Jennifer Beck, an analyst with Gartner Inc.,in Lowell, Mass.

"Now, three years after acquiring Digital, they are beginning to figure out what they want to do with the services they bought," Beck said.

When Houston-based Compaq last month announced plans to phase out the Alpha processor and the NonStop Himalaya systems and embrace Intel Corp.s Itanium, critics speculated its service division could lose significant revenue tied to it.

With its Computing on Demand initiative, Compaq last week rolled out several programs that essentially offer to lease servers and storage devices to companies that are then billed only for the computing power they use. The pay-as-you-go programs are also tied to installation services, software and support. But some critics contend Compaq laid a weak foundation on which to expand its service business.

"Services and capacity on demand look good on paper, but I dont think anyone has come up with a credible model that makes money or makes sense," said analyst Ashok Kumar of US Bancorp Piper Jaffray, in Minneapolis. The biggest obstacle Compaq faces is overcoming its perception as solely a hardware vendor.

"We are very credible. This is an $8 billion part of Compaq," said Peter Blackmore, executive vice president of Compaq Sales and Services. "By any standards, that is huge."

Some system managers disagree.

"While I think its good when a company can back up its hardware with decent-quality services, I kind of question Compaq getting into some of the areas of service, such as software," said Lee Johnson, CAD support specialist for Western Star Trucks, in Kelowna, British Columbia.

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