Compaq to discuss strategy as stand-alone company

Caroline Humer

NEW YORK: Compaq Computer Corp. executives will meet with Wall Street

analysts on Friday to lay out a strategy that the No. 2 personal computer

company says will hold up even if its planned merger with Hewlett-Packard Co.

does not go through, analysts say.

Executives, who will meet with Wall Street analysts on Friday in New York,

will discuss both merger outcomes and go into details on its different

businesses including data storage machines, computer services, personal

computers and services, a Compaq spokesman said.

But analysts do not expect chief executive Michael Capellas or any of the

division heads to discuss in detail the $25 billion merger with HP, which is

under fire from investors and members of HP's founding families. They expect a

reaffirmation of Compaq's plans to push forward with a shareholder vote.

"There's no question the presentation will be Compaq's strategy on a

stand-alone basis, subject to the caveat that if what we are betting or planning

on comes to fruition, then we'll be part of HP," says Richard Chu, an

analyst at SG Cowen. "I think while they will reaffirm their commitment to

the HP merger. I think that will be about all they'll say about that," Chu

said.

Compaq and Hewlett-Packard announced merger plans on Sept. 4 and are expected

to hold a shareholder vote in March. It is unclear, however, that shareholders

will vote "yes." Heirs of founders Bill Hewlett and Dave Packard, who

control an 18 percent stake, have said they intend to vote against it. European

Union regulators are now considering the merger.

Compaq says that the company will talk about HP as well as its strategy if

the merger does not go through at the annual meeting, which is typically held in

Houston.

"We're going to discuss Compaq. Compaq is still a stand-alone company

and like we do every year we are going to talk about our strategy looking

forward as a stand-alone company, but we will also talk about the merger. It

will be complementary," Compaq spokesman Arch Currid said.

Chu also said that Compaq is likely to note parts of its strategy, such as

its storage business and its efforts toward a more direct supply chain model in

personal computer business, support HP's offer.

Compaq last week reported fourth-quarter profits that beat expectations --

based on company guidance -- for it to produce its second quarterly loss in a

row. The company also had higher-than-expected revenue, helped in part from

consumer demand at the end of the year related to holiday purchases.

Looking forward, Compaq said that it expects first-quarter earnings of 1 cent

per share on revenue of $7.6 billion and said it sees a recovery ahead.

PC sales fell in 2001 for the first time as consumers and corporations held

back on technology spending. No. 1 PC maker Dell Computer Corp. took advantage

of its low-margin direct sales model to cut prices aggressively and win about 25

percent market share, pushing Compaq down to the No. 2 spot.

Analysts said they hope to hear how the consumer market is holding up in

January, given that the first-quarter is typically the slowest for personal

computer sales. In addition, analysts will be looking for guidance for 2002 as

well as an outlook for information technology spending. Component prices are

another issue, they say. Memory prices, for instance, have been on the rise,

which could weigh on PC makers' margins.

While the uncertainty of the merger outcome may be awkward for Compaq,

Deutsche Banc Alex. Brown analyst Conan Laughlin said the fourth quarter results

showed the company can both manage the merger planning and its business.

(C) Reuters Limited.