Commentary: Does Compaq server change signal new era?

The change in leadership at Compaq Computer's high-end server group is a reminder of the challenges that the company faces in the server market.

While large annual growth in storage eats up corporate IT hardware budgets, and the economy cools down, all server companies face a tough market in 2001. Compaq, however, has some unique problems leftover from its acquisitions of Digital Equipment and Tandem.

When Compaq bought Digital and Tandem,

	See news story: Compaq names new leader for high-end servers

it acquired other companies' problems. Transition issues continue to burden management and sales force efforts and distract the combined group from competing effectively against Sun Microsystems. We doubt that any individual can change that situation and reinvigorate Compaq's server business in the market.

Compaq's server group is also caught in the middle. Dell Computer is eating up the low end of the market dominated by Wintel, or the Microsoft Windows-Intel chip establishment, while in the high-end professional services market, Compaq faces stiff competition from IBM and Sun.

We believe Compaq has too many variables to consider, and it can't seem to decide on what to focus. Management so far has refused to make hard decisions about the various acquired product lines, and in short, is trying to do too much.

On the other hand, Compaq is doing well in the storage market, and not just inside the market for its own servers. Compaq is becoming the No. 2 storage hardware choice behind EMC, and Compaq add-on storage is showing up attached to servers from other vendors.

People should look to Compaq as an alternative to EMC for storage hardware, particularly in the midrange market. However, businesses should treat Compaq as they do any other vendor and not give it a special status because of its name. In this tepid market, people should expect to win 30 percent discounts from Compaq and competing storage vendors.

Meta Group analysts Val Sribar, Peter Burris, Dale Kutnick, David Cearley, William Zachmann and Nick Gall contributed to this report.

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