Compaq Computer Corp, which is facing price competition and falling personal-computer demand, will intensify efforts to refocus its business on sales of services, software and hardware tailored to specific industries.
Chief Executive Michael Capellas outlined the shift in a memo to employees, spokesman Steve Sievert said. The plan includes spending as much as US$500 million on computer-services companies and boosting software sales to reach 40 percent annual revenue growth. The company will retrain the sales force and pare US$200 million in costs a year on top of US$600 million in cuts announced in March.
The biggest PC maker's profit has dropped this year as computer demand slipped and the company reduced PC prices to compete with Dell Computer Corp. Corporate customers, meantime, are seeking more low-cost computer-related services that simplify and integrate complex tasks, Capellas wrote.
"Our goal is to transform Compaq and to do it in the next 180 days," Capellas wrote.
The plan calls for reducing complexity in Compaq products and internal operations. Compaq will create a companywide support-services unit instead of separate service groups for each business unit, for example. Capellas said the company must "drive radical simplification." Compaq shares rose US$0.40 to US$13.90. They have fallen 60 percent from a 52-week high of US$35, reached on Aug. 28.
Sievert called the internal memo "a rallying cry for our employees." In its services bid, Compaq will initially target customers in telecommunications, financial services, retail and government, the memo said. In the next six months, health care, life sciences, media and entertainment and manufacturing will be added. Compaq also will seek to sell more computer-related services on a pay-as-you-use basis, like a utility.
"Compaq has been trying to move to services for a long time," said Jeremy Davies, a partner at Context, a London-based research company. "The appalling state of the PC market in the past months forced them to sharpen their focus and decide when they'll achieve those goals." In May, Compaq said it planned to increase its global services business in the next few years to 30 percent of sales from the current 21 percent.
As part of its plan to streamline product groups and reduce costs, the company last month said it would combine five types of corporate computers under a new brand name, "Evo." The new business model for Houston-based Compaq is closer to that of International Business Machines Corp, the largest seller of computer services and hardware, though Compaq said it will continue to pursue market share in PCs and PC-based servers.
"Our fundamental value will come from integrating our different products, bundling applications, leading more with services and selling solutions with a clear customer value proposition," Capellas wrote.
Capellas's memo was reported earlier by the Wall Street Journal.
In April, Compaq said it would fire 2,000 workers, bringing the total reduction this year to 7,000, or 10 percent of the staff. The company also reported a 21 percent drop in first-quarter profit and reduced its second-quarter earnings estimate to US$0.05 a share from US$0.17. Chief Financial Officer Jeff Clarke reiterated that forecast on June 7.
As of Dec. 31, Compaq had 70,100 employees.
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