Wall Street analysts covering Compaq Computer Corp. (NYSE: CPQ) generally agree that the PC maker's plan to sell AltaVista to CMGi Inc. (Nasdaq: CMGI) is a good one. It is -- in the short run. Long term, however, the sale of AltaVista may not look so good.
Compaq's traditional business -- making PCs -- is flagging amid stiff competition and frequent blunders. Analysts argue that the now-redesigned AltaVista portal has become a money-sucking distraction.
| Compaq: Selling away its future? |
"Ultimately this is a good thing for Compaq," said Alex Cheung, portfolio manager of the Monument Internet Fund. "It would free up capital and tension in the company."
Compaq needs to focus on its core business, but the sale of AltaVista will take away the one thing that Compaq shareholders could look forward to. Without any Internet assets or a strategy, Compaq looks like a bum investment. So much for a reinvented Compaq.
The PC maker's "hot and heavy" talks with CMGi actually turned into reality as the companies announced the sale. Compaq now owns a stake in CMGi and becomes CMGi's IT provider. CMGi gets AltaVista and placement on Compaq's computers.
Through CMGi, Compaq may benefit from the outsourcing arrangement, but guess who will get most of the upside? It won't be Compaq. Is the Compaq selling enough hardware to warrant the sale of any potential new revenue streams? No way.
Compaq was going to combine AltaVista's Internet reach with its reach as the top PC maker. With the sale of AltaVista, Compaq transforms from being the largest box maker to being, well, the largest box maker. Granted, Compaq could have screwed up its AltaVista strategy, but at least Compaq knew enough to spin off AltaVista and potentially turn its PCs into e-commerce conduits. At the very least, Compaq would have been recognized as a company that understood the Net.
There's a reason PC makers are staking out their Internet territory. Gateway Inc. (NYSE: GTW) knows it has to become more than just a PC maker. Gateway.net and its talks with Earthlink Inc. (Nasdaq: ELNK) show the company is thinking ahead. Gateway knows it needs more than one check from its customers every three years or so.
Compaq has shown lately that it's not doing so well just being a PC maker. Competitors are stealing Compaq customers, the company can't go direct like Dell Computer Corp. (Nasdaq: DELL) and it doesn't have the cost structure to compete. Meanwhile, the price and value of PCs continues to fall.
It doesn't take a rocket scientist to see PCs becoming commodities. PCs could become $200 boxes that merely enable Internet access. Sound familiar? It is. It's that cable box sitting on top of your TV.
Microworkz.com already has the iToaster, a $199 machine just to get on the Net. E-Machines and a host of others are making the sub-$1,000 PC market Compaq pioneered a living hell.
So what does Compaq do? Focus on making boxes.
Analyst rides Apple
For watchers of Apple Computer (Nasdaq: AAPL), Wall Street analysts aren't ranked very high on the "Think Different" scale. Except for one.
Louis Mazzucchelli, an analyst with Gerard Klauer Mattison, was bullish on Apple well before it became cool to do so. And now comes the payoff for the analyst.
The Wall Street Journal ranked Mazzucchelli as Wall Street's top computer analyst, bringing home a 1998 portfolio return of 249 percent. Much of those gains could be attributed to Apple's resurgence.
How did Mazzucchelli know Apple would be a star? He did his homework doing odd things like spying on customers buying iMacs at Best Buy and talking to the little guy. Homework pays.