Compaq’s Outsourcing Brightens Financial Picture

One of the brightest lights in Compaq Computer Corp.’s otherwise dismal 2001 financial performance was its nearly $8 billion services arm, which posted more than $1 billion in new outsourcing engagements last year and grew bookings more than 28 percent over 2000. Compaq, primarily known for manufacturing computers, saw its outsourcing services growth rate hit more than twice the total IS outsourcing market’s 5-year CAGR of 12 percent.

The Littleton, Mass.-based unit’s long-term 85 percent customer renewal rate, bolstered by the introduction of new service offerings, was instrumental to the explosive growth rate, according to Dr. Judy Fick, vice president of Compaq Global Services.

“Customers — expecting more value for their IT dollar — are increasingly relying on Compaq to reduce the risk and complexity of adopting new technologies,” Fick said. “We enable customers to focus more sharply on their business, taking responsibility not just for IT performance and cost, but collaborating on their strategic alignment of IT assets to business results.”

Compaq’s outsourcing business focuses on selective outsourcing for IT infrastructure management and end-user support. The company’s Computing on Demand initiative — launched in 2001 to simplify IT acquisition, deployment and management — has fueled demand for Compaq’s enterprise management capabilities and technology expertise.

Ericsson and GE Aircraft Engines renewed significant outsourcing contracts with Compaq in 2001. American Express, Regus and Blue Cross Blue Shield of Michigan were among businesses that signed new deals.

In 2001, Compaq Global Services continued to be the Houston-based company’s strongest segment, with revenue of approximately $2 billion, showing 8 percent sequential growth and 4 percent growth over the prior year period. Operating profit was $253 million or 12 percent of revenue. The services business now comprises 24 percent of Compaq’s revenue.

During the fourth quarter, Global Services experienced strongest growth in customer support and financial services. One of the natural outgrowths of Compaq’s strength in customer support is the expansion of its managed services business — which includes outsourcing, Computing on Demand and other IT utility programs.

It was business badly needed by Compaq. Revenue for the fiscal year totaled $33.6 billion, a decrease of 21 percent from 2000. Excluding special items for the year, net income was $256 million, or 15 cents per share, down 85 percent from the prior year. Reported net income for the full year was a loss of $785 million, or 47 cents per common share.

“Our fourth quarter results clearly demonstrate Compaq’s strong focus on execution and solid market momentum,” said Michael Capellas, chairman and chief executive officer. “Early last year, we outlined three strategic objectives for the company: extend our enterprise capabilities, grow and achieve critical mass in global services, and improve the economics of our PC business while increasing the velocity of our supply chain. There is still work to do, but we have made significant headway.”

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