180-day plan to transform Compaq into services behemoth

Radical simplification

By John Leyden • Get more from this author

Posted in Business, 25th June 2001 11:37 GMT

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Compaq intends to focus more on software and services in a restructuring plan that involves the sale of its Alpha processor division.

The possible divestiture of Alpha is part of a much wider plan by Compaq to transform its business over the next six months.

According to a memo from chief executive Michael Capellas (obtained by The Inquirer), Compaq will place more emphasis on the sale of industry specific technology and services.

Volume hardware products will remain strategic to the company. But the company needs to 'drive radical simplification' through the way in which it conducts business.

In the last two years Compaq has concentrated on leading the market as an Internet infrastructure provider. but the restructuring will see it place far more emphasis on software and services; this will make the firm more like IBM in its character.

The transformation calls for deeper cost-cutting measures, including inventory cuts, with the aim of saving $200 million per quarter.

Alongside this, Compaq aims to improve software development activities and building its services business, possibly through acquisition (for which it has budgeted $500 million).

Within the next three to four years, "our goal is to increase services from about one-fifth of Compaq's revenue today to one-third," Capellas said in the memo. This means growth rates of 40 per cent per annum, he added.

The company also wants to regain its leadership in the SMB market, the fastest-growing IT sector. ®