COMPAQ INDIA: Pushing for the ‘S’ Class

This is an impressive DQ Top 20 story. Of a PC vendor that

entered India relatively late, in the mid-1990s. It acquired an established

systems and solutions company in 1998-99, while entering the DQ Top 20 at No 5

in 1998-99. It soon set the PC marketing benchmarks for established players like

HP and IBM. And it’s now made it to the Top 5 infotech groups of India–growing

the fastest among the systems vendors.

Compaq entered India in 1994, setting up a subsidiary in 1997

with a Rs 45 lakh investment–later stepped up to Rs 2.25 crore. In July 1999,

the share capital went up to Rs 88.5 crore (88 million shares), mostly held by

Compaq Computer, USA. This year, almost the entire equity has been transferred

to Compaq Mauritius.

Compaq India spent its first four years building up

operations, channels, a first few retail outlets, and other core and support

infrastructure. These included, in 1998-99, an assembly plant at the then

recently-acquired Digital India’s facility off Bangalore, call centers in

Mumbai, Delhi and Calcutta, and service networks (and packages) to tackle an

unimpressive service reputation in India.

For a company in global and local turmoil, Compaq grew rather

well. In 1998 came the acquisition of Digital India, unique in India because the

latter retained its Digital identity as a services subsidiary. Systems and

servers went to Compaq, which closed down most Digital product lines barring the

Alpha-based UNIX servers. Digital India chief Som Mittal replaced Abhishek

Mukherji as head of Compaq in India in 1998. A year down, Mittal went back to

heading Digital India, as Balu Doraisamy took over at Compaq. Compaq took a

global hit in its PC leadership and its earnings, went through a $1-billion

restructuring and 8,000 layoffs, and sacked CEO Eckhard Pfeiffer, as a very

low-profile Michael Capellas took over. The systems problems continued, Compaq

losing global No 1 position to Dell — first in PCs globally, then in servers

for North America in Q1 2001.

The turmoil is behind Compaq India, though. It saw rapid

growth in India last year, far beyond its Asia growth of 16%, grossing $0.6

billion for Q1, 2001 in Asia excluding Japan and Greater China (PRC, Taiwan and

Hong Kong). Global revenues for the same period were $9.2 billion, of which

Japan, at 31%, has the biggest share outside the US.

In the year gone by, Compaq India displaced HCL Insys from

the top PCs slot. Now, Compaq’s focus and challenge remains that of going

beyond PCs to the more profitable S-segments: servers, storage, services. It’s

done well in parts: its storage business grew 40% in India, and contributed 10%

of Compaq Asia-Pacific’s storage revenues.

In high-end UNIX servers, Compaq is a distant number four in

the global RISC UNIX servers segment. The gap in the Alpha’s life-cycle,

during the Digital acquisition by Compaq, was not good for the Alpha; now, it’s

nearing the end of the road for the Alpha. Compaq is switching to Intel’s

Itanium for its high-end servers, and will "transfer its Alpha chip

expertise" (people and technology) to Intel, leaving the RISC genre to Sun

and IBM. And in Intel-based servers, whatever the global challenges from Dell,

Compaq was a clear number one in India.

Compaq has now merged its consumer and commercial desktop PC

operations under one roof. In India, this "Access Business Group",

under director Ravi Swaminathan, will sell a range of devices that will access

the Net: portables, hand-helds, MP3 players, and related services.

Compaq’s DQ Top 5 Group entry was helped by its services

subsidiary’s performance. Digital India, which focuses only on software and

services exports, has just reported its first full year of operations ending

March 2001. Its revenues at Rs 184 crore represent more than a doubling of its

previous year’s (annualized) revenues. Its hardware and networking services

businesses were transferred to parent Compaq, while it stayed focused on

software and services. With its unique position (only in India does the Digital

logo still exist), Digital India describes itself simply as a "software and

services multinational headquartered in India".

What’s next for Compaq? The global focus is on a systems

recovery, from red ink to black. For India, Compaq will keep the pressure up on

PCs to maintain the #1 slot, try to ramp up PC server sales to make up for any

decline in its UNIX servers, and try for major projects to keep both systems and

higher-margin services revenues up. Compaq Global Services plans to spend over

$10 million on acquiring "a couple of companies in India" this year.

This should help Compaq in closer to IBM Global’s services revenues in India,

and keep up its growth and margins–a tough task in this financial year.