CEO Michael Capellas kicked off the company's annual analyst meeting Friday with a vision straight out of the Bill Gates dream book.
You know the one. As the PC transformed the mainframe era, so the Internet has transformed the PC era in a way that both displaces and reinforces the client/server model. New access devices are displacing the PC as the main way users connect to diffuse networks. Yet the huge demands created by these devices necessitates the continuing buildout of large-scale infrastructure. There's a lot of data. And the world needs database and applications servers to churn it, storage servers to hold it, software to organize it and all sorts of devices with which to access it.
In Capellas' version, of course, Compaq has its hands in each of these segments.
Out at the edge of the new universe, the personal computer plays a somewhat peripheral role. Capellas and his management team spent much more time talking about thin devices like the handheld and desktop
than the PC. More pointedly, they touted the company's enterprise-level strengths: its wealth of engineers, its 14,000-person services team and its myriad partnerships with companies like
All of this jells with the strategic shift the company
outlined in the guidance it gave for 2001 on its earnings conference call Tuesday. On it, Capellas told analysts to expect revenue to grow 6% to 8%, as much as 4 percentage points below prior guidance. But at the same time, Compaq maintained that it would be able to meet analysts' expectations for earnings-per-share growth of 20% to 25% for the year.
How to get there from here? Capellas told analysts on Tuesday's call that Compaq planned to back away from the low-end PC market, which will probably see the worst of the current price war in that industry. By doing that, he said, Compaq would naturally skew its sales mix toward more profitable enterprise businesses like storage, servers and services.
Friday, CFO Jesse Greene gave some more details on how Compaq will manage its bottom line. He claimed the company will be able between 0.5 and 1 percentage points of gross profit margin by better managing its supply chain. Aggressive stock buybacks and vigilance over operating expenses will be key, too, he said.
To pull it off, Compaq will need very strong execution. At least better than the company showed at the start of its analyst meeting, which was delayed one half hour as Capellas struggled in morning Houston traffic.