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Compaq chief sees bumpy ride ahead

Growth in IT spending will not stabilise in the near future and PC innovation is stagnating, said a somewhat gloomy Michael Capellas, Compaq's chief executive officer, in a keynote speech at the IDC European IT Forum in Monaco on 17 September.

Just before Capellas' speech, the market research firm IDC came out with a new worldwide IT spending forecast, which has IT spending levelling off at about 10% between 2002 and 2005. The forecast was adjusted downward for the effects of the economic slump and the terrorist acts in the US.

"I am not a great believer that stable growth is going to happen. I think the pattern of spiking up and down is one that's going to be with us for a while," said Capellas, who delivered his keynote via videoconference. He could not attend the forum in person because of last week's terrorist attacks.

There will be growth in certain areas, such as IT services - one sector the combined Hewlett-Packard and Compaq will focus on - said Capellas.

The "brutal pricing" in the PC market - stemming from the PC becoming a commodity, the industry maturing and excess PC manufacturing capacity - is leading to a slowdown in innovation, according to Capellas. He also said that the heavy discounting in PCs "will be with us for a while".

But demand for PCs, boosted by the rise of the Internet, will shift into demand for complete packages of more advanced hardware and services, according to Capellas.

Earlier on 17 September, Lester Thurow, professor of management and economics at the Massachusetts Institute of Technology (MIT) claimed that Compaq had given up on PCs and bailed out of the price war led by direct seller Dell. Capellas confirmed that Compaq had decided not to engage in this price war as it had been doing before.

"We are not giving up at all on the access business," he said, using the term "access" to refer to PCs, handheld computers and other devices that can be used to access a network. Compaq aims to lead this market in the future.

On the merger with HP, Capellas echoed the words spoken by HP's Carly Fiorina in her own keynote address.

"This merger has been seen as a consolidation of the PC business. I see it as driving a new model for the enterprise," said Capellas. He reiterated that the Compaq brand would continue to exist, but said that it would be premature to say what products would carry a Compaq sticker in future.

On the IT services side, Capellas said, HP and Compaq would grow organically and make acquisitions to be able to take on primary rival IBM.

"The hardest thing to do for a services company is to create a global service infrastructure. Both companies will probably target and make some acquisitions in professional services and consultancy, not of larger companies, but in targeted areas in vertical markets," Capellas said.

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