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

software rental market
as it develops business relationships with ASPs and ISVs today, in order to
provide Compaq with differentiated revenue streams tomorrow.

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