Compaq's Capellas stands behind HP deal

NEW YORK: Compaq Computer Corp. chief executive Michael Capellas on Friday

said that the fundamentals for an economic recovery in the second half of the

year are "in place," and reaffirmed his commitment to the proposed $25

billion merger with Hewlett-Packard Co.

Capellas, speaking in New York during the company's annual meeting with

investors and analysts, said that the planned merger with competitor

Hewlett-Packard Co. -- which has come under fire from investors and members of

H-P's founding families -- makes good business sense.

He brushed aside talk of the family dissent, saying that "both the

retail investor and institutional investor are very smart people and understand

this business, and they will weigh in." Capellas made the comments when

questioned about an advertisement that David Packard, son of H-P's co-founder,

took out in the Wall Street Journal earlier this week that criticized H-P's

merger plans.

Capellas, who kicked off the meeting with a 40-minute overview of Compaq's

business strategy, said he will discuss the merger more fully in an afternoon

session, scheduled to begin at 1 p.m. ET. Capellas also said corporate

technology budgets are up marginally so far this year, and that growth in

technology spending will be disproportionately stronger than the overall

recovery.

He said he expects infrastructure, security, Web integration, and customer

relationship management to be areas of growth. and sees overall information

technology spending recovering in the second half of the year. In addition, he

said, "I think there is pent-up demand in the PC life cycle,"

referring to the typical three-to-four year replacement cycle for personal

computers.

Capellas said he is more optimistic than some industry analysts about the PC

business growing this year. All the same, he sees the overall PC market

contracting by three per cent in 2002. Last year, the PC market shrank for the

first time since 1985. And No. 1 PC maker Dell Computer Corp. launched an

aggressive price war that has hurt Compaq, Hewlett-Packard, and Gateway Inc.