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Compaq looks for good news with server launch

The troubled company hopes next week's release of new servers and a revamped enterprise group will counter a year dominated by layoffs, management turmoil, and customer defections.

Compaq Computer will take a big step on its road to recovery next Tuesday when it introduces powerful, eight-way Pentium III Xeon servers at a gala event in New York.

Along with the new servers, and perhaps more importantly, Compaq also will unveil its new strategy for serving large customers and will introduce a significantly revamped enterprise group.

The event is important for Compaq as it tries to salvage a miserable year: massive layoffs are in the works, some large customers have defected to competitors, and turmoil has struck the senior management ranks. As a result, investors have pounded the company's stock, which is now trading at about 23, less than half its 52-week high of 51.25.

The event is also a coming-out party for Enrico Pesatori, senior vice president and general manager of the Enterprise Solutions and Services group. Pesatori took over the newly formed organization in a June 17 shakeup that carved Compaq into three major divisions. The other two groups oversee consumer and commercial computing. Last month, Compaq also named Michael Capellas as the company's new CEO.

Pesatori has been meeting with senior executives as he reorganizes the division and attempts to regain the support of Compaq's largest customers. In recent months Compaq lost a number of major customers, including Coca-Cola and Home Depot, to competitors.

Many of the losses have been among AlphaServer and Tru64 customers Compaq acquired when it bought Digital Equipment. Compaq hopes the new eight-way servers will attract large customers looking for alternatives, as well as those looking for more performance from Windows NT.

Standard Wintel servers currently max out at four Pentium III Xeon processors. Eight-processor servers have been eagerly anticipated but slow to emerge because of delays with the Profusion chipset from Intel.

Although next week's event could give a much-needed boost to Compaq, the company still faces a painful transition plan--as many as 8,000 employees will lose their jobs during the third quarter.

Pesatori's group was created from Compaq's enterprise computing and services divisions, which had been run, respectively, by John Rose and John Rando. Both executives departed the company following the April ouster of CEO Eckhard Pfeiffer.

Compaq isn't the only company ready to roll out eight-way servers; Dell, and IBM also have products in the pipeline.

Compaq hopes to get the jump on Dell, as it did with the launch of its four-way Xeon server. Both companies released models within days of each other and more than a month before competitors.

Dell's low-inventory, build-to-order model typically lets it move new products the same day Intel announces new microprocessors. Indirect companies such as Compaq usually must ramp up production and clear out older models first. But Compaq has moved increasingly to a more flexible manufacturing model that has shortened time required to get new products on the market.

The official launch of the eight-way server is expected the week after Compaq's event when Intel officially unveils the Profusion chipset. Compaq competitors are expected to then announce their own products.

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