Compaq to restructure, to focus on services & software

NEW YORK: Compaq Computer Corp is planning a massive restructuring that will

see it emphasize sales of industry-specific packages of computers, software and

services over computer hardware, The Wall Street Journal reported in its

online edition on Monday.

Citing a memo sent to employees by Compaq chief executive Michael Capellas,

the newspaper said the Houston-based computer company has outlined a new

strategy that will shift its focus from Internet equipment markets to an IBM

Corp-like course, accentuating software and services.

In addition, the plan will include new cost cuts on top of those announced

earlier this year, acquisitions to bolster computer-service revenue, and

expanded software development and sales to lessen its reliance on hardware, the

newspaper said.

By year-end, Compaq expects to cater to industries such as financial

services, telecommunications, health care and manufacturing, rather than the

Internet customers that it has championed for the past two years, the newspaper

said.

Compaq aims to expand higher-margin services to offset the grueling profit

squeeze in its traditional hardware business, the newspaper said. According to

the report, Capellas wrote in the memo that within four years, "our goal is

to increase services from about one-fifth of Compaq's revenue today to

one-third." To achieve what amounts to a 40 per cent annual revenue

increase, Compaq will spend up to $500 million on computer-service companies,

according to the memo.

A Compaq spokesman declined to make executives available for comment but

confirmed the existence of the memo, the newspaper said. According to the memo,

the firm expects to chop an additional $200 million out of annual operating

costs, on top of a $600 million expense cut outlined in March, the newspaper

said.

The memo said that even as it pursues an industry-specific approach, Compaq

still aims to increase its share of PC and PC-server sales by one to two

percentage points in the second half of the year, the newspaper reported.

(C) Reuters Limited 2001.