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Compaq Antes Up $1 Billion on ASP Server-Supplier Bet

As part of a game plan to gain ground in the lucrative server supply market Compaq Computer Corp. Tuesday said it committed more than $1 billion to finance and invest in application service providers (ASPs) and Web developers.

Compaq (CPQ) announced that the project includes $600 million designated for service provider financing programs, $400 million for equity investments in service providers and independent software vendors (ISVs), and $150 million for joint marketing programs to bring new application services to market.

Michael Capellas, Compaq chairman and chief executive officer, earlier this year said that by the end of 2001 as much as 20 percent of its revenues would come from the Internet service provider and application service provider (ASP) market segments.

But Compaq faces stiff competition from industry leader Sun Microsystems, Inc. (SUNW) , as well as rival firms Hewlett-Packard Co. (HWP), and Dell Computer Corp. (DELL).

Bill Dering, C.E. Untberg, Towbin analyst, said it no surprise that companies like Compaq are investing in ASPs now.

"Compaq has pretty deep pockets and does a lot of investing," Dering said. "It isn't surprising from a strategic standpoint that Compaq is prepared to make investments in its future customers."

Sun Microsystems has established ASP deals with leading national firms including Digex Inc. (DIGX) , CORIO and Internliant (INIT) . While Compaq has worked to build ASP ties with Cable & Wireless plc (CWZ), FutureLink, and DataReturn.

Dering said it just makes good business sense for Compaq to align its server supplies with burgeoning ASP companies now.

"Big vendors spend on ASPs as key customers of the future," Dering added. "Rather than focusing on 20,000 medium-sized customers, they can focus on serving 5,000 larger clients through ASPs."

One advantage Compaq possesses over Sun is its Microsoft Corp. accreditation program that provides Compaq with an extensive portfolio of solutions for Exchange 2000, Windows 2000 and Windows NT 4.0 servers. Its ability to deliver worldwide services to help ASPs design, deploy and maintain messaging and collaboration solutions based on Microsoft (MSFT) technologies is a competitive edge for Compaq.

A second advantage lies in Compaq's financing strategy to sell storage-on-demand to ASPs. Its ability to deliver mission critical rapid storage expansion to e-commerce companies served by ASPs makes it easy for providers to ramp-up seasonal sales services. Flexible financing packages from Compaq may out perform Dell's ability to provide the same services.

Whether Compaq can attain its goal of providing a "whole new level of premier global enablement services" to ASPs remains to be seen. The hardware firm is looking to tap into the lucrative