Compaq Services may get new sheen

In the wake of Eckhard Pfeiffer's ouster yesterday, analysts gave the former Compaq chief executive low marks for putting Compaq's services division on a more successful track. Some suggest the company should even spin-off the services unit.

"Eckhard did a very good job moving Compaq out of the PC business and positioning them to be a full computer supplier," said John Dunkle, president of Workgroup Strategic, a Portsmouth, New Hampshire-based consultancy.

"What he failed at is playing anything that didn't touch on hardware--including services, infrastructure for working with ISVs and those things that it really takes to be successful," Dunkle added. "If you look at [IBM's Lou] Gerstner, those were the things they did very well. Eckhard can't stand on the same stage."

Compaq's services push hasn't been dynamic, even though the company picked up an army of services employees when it acquired Digital Equipment last year. Meanwhile, rivals IBM Global and Hewlett-Packard continue to make waves in the market.

The lackluster performance comes despite the fact that Compaq Services now has grown to nearly 30,000 workers. The division provides everything from customer desktop services to network and computer systems planning, to management of email systems and networks. It also has a number of well-hidden Internet services talents that could stand a high-profile push, analysts say.

What the company has failed to do, analysts say, is build the Compaq Services brand--as IBM Global Services and HP have done with e-business and e-commerce marketing strategies.

Of the PC vendors, "HP absolutely has the best professional services, and IBM has the brand and the recognition," Dunkle said.

As for Compaq, "They say they're a full-line vendor but they're having a tough time fitting into those pair of blue jeans," he said. Meanwhile, Compaq's biggest competitor, Dell Computer, has avoided providing services altogether, choosing to farm out most of its work to IBM and Unisys.

Danny Lam, a director of consulting firm Fisher Holstein, said the company could always choose to spin-off its consulting business as part of an overall restructuring.

While that strategy would allow the standalone firm to sell services on multivendor platforms--instead of just Compaq's--Yankee Group analyst Gopi Bala said the approach would come at a price.

"What you gain with that [an independent services arm] you will lose in your access to Compaq accounts," he said. "The sales force doesn't have the incentive to push services for the standalone."

Compaq's challenge today remains the same as the day it acquired Digital in January 1998: proving to customers that Compaq deserves the same trust with services as they put in the Digital brand, analysts said.

At the time of the acquisition, about 23,000 Digital services employees joined Compaq, which had about 6,000 of its own services workers focused more on low-end PC and server management service.

Since the acquisition, not much has changed within the services group, other than the company name on employee business cards, said IDC program director Richard Brewer. Compaq Services are still run by long-time DEC manager John Rando, and many of the services employees still work at old Digital facilities in Massachusetts.

"They've been struggling with bringing Digital into the mix and building a coherent brand for services," Brewer said. Compaq also lacks a consumer e-commerce strategy, he added.

"The problem with Compaq is that compared to IBM Global, they're just outgunned with the whole marketing and e-business thing," he said. "Nobody associates Compaq with e-commerce," although the company does a lot of work in that area, he added.

While Digital was traditionally known as a full-service computer company; Compaq is known for its hardware. But the computer firm is working to change that image.

The firm last month renamed and repackaged its services for large corporations that manage hundreds of PCs. Compaq's "Lifecycle Solutions" program is targeted at corporate customers, the same market in which declining prices and increased competition forced the company to halve profit projections for early 1999. Compaq has also highlighed its high-end servers and operating systems--products that have higher profit margins.

Compaq makes more money off its services than the average hardware-focused company. In 1998, the Houston-based firm reported $3.5 billion, or 12.5 percent, of overall revenue of $27.1 billion came from services, according to IDC. That compares with a revenue average of about 5 percent derived from services for other industry players.