Compaq eyes acquisitions despite weakness in Europe

Ian Karleff

TORONTO: Compaq Computer Corp. is facing weakness in European markets,

chairman Michael Capellas said on Wednesday, noting, however, it is still

aggressively seeking acquisitions of services companies despite a failed bid for

Internet consultant Proxicom Inc. in May.

He said Compaq, the world's No. 2 computer maker, sees softness in the German

and British consumer markets and expects it to spread to corporate accounts.

"We expect major corporate accounts to slow...the speed and timing of the

recovery is hard to predict," Capellas told a Toronto gathering.

Other makers of computing equipment, including handheld device maker Palm

Inc. and most recently Sun Microsystems Inc., have also warned that their

financial results are being hit by European weakness. Capellas first warned

investors of his European worries in March, while analysts have been saying

lately that it would take at least six months for the impact of the US economic

slowdown to be felt fully in Europe.

"Our European contacts are seeing signs of slowing and weakness across

mainland Europe and the UK," wrote Merrill Lynch analyst Thomas Kraemer in

a recent note. "Because macro events usually impact Europe about six months

after the US, and because the US situation is still uncertain, customers are

getting nervous," Kraemer said.

Acquisitions

Depressed stock market valuations have created opportunities for Compaq to

make acquisitions, especially of information technology companies with strength

in servicing the telecommunications sector and retail brokerages. "We are

aggressively looking for acquisitions in the services market," Capellas

said.

Compaq failed last month in its bid for Internet consulting firm Proxicom

Inc. after South Africa's Dimension Data Holding trumped Compaq's $266 million

bid by about $100 million. Capellas said Compaq would hold to its mantra of not

over-paying for anything, and "not buying anything that you can't

chew."

Brutal competition

He reiterated his view of a "brutally competitive marketplace"

that shows no signs of getting any better as Dell Computer Corp. and other

competitors slash prices to maintain market share. "The market is very

tough but we will be fiercely competitive. There is no indication that demand is

perishing, it is simply being delayed," Capellas said.

Compaq is in the process of realigning manufacturing, reducing costs, and

driving down inventory levels. Capellas said that in terms of pricing, Compaq

will "be as aggressive as we have to be to be competitive".

(C) Reuters Limited 2001.