An Armada Or Maybe Just A Flotilla

Six feet tall and weighing up to 1,000 pounds, Compaq Computer Corp.'s latest product is hardly what you would expect from a PC company. But as its code name, the Armada, suggests, Compaq is out to conquer new worlds: namely, the corporate market of mainframes and minicomputers long dominated by IBM and Digital Equipment Corp.

The name Armada, however, may be a bit too grandiose. The system is little more than a metal rack stuffed with Compaq's Proliant server PCs repackaged to slide in like drawers. Its big appeal is convenience--something Compaq bets will draw companies that are struggling to get a handle on the wild proliferation of PCs and networks. "With high-speed networks all over the place, companies want to consolidate all their servers in one place," says Senior Vice-President Gary Stimac.

FAT MARGINS. If he's right, that could mean demand for lots of turbocharged hardware. The new server--a fully-loaded system costs over $100,000--provides cushy gross-profit margins of 50%, nearly twice the margins of Compaq's existing servers and almost four times what it gets for desktop PCs. Which is why IBM, for one, doesn't want to lose any more corporate accounts. "IBM is coming on strong" with a new low-end server, says International Data Corp. analyst Susan Frankel. But, she adds, "I don't see anyone taking momentum from Compaq."

Momentum is one thing. Supporting the entire computing operation of a big company is another. To be able to do that, Compaq is investing some $40 million this year to develop a range of sales support services and to retrain dealers to handle complex corporate jobs. "I just don't see a PC reseller understanding how to sell this," says Neal B. Ebert, manager of technology product development with Baxter Healthcare Corp. Ebert got 40 servers from Compaq, but the deal didn't go through until the company agreed to support Baxter directly. It's a demand Compaq will hear more often. "If this box goes down, hospitals don't get their supplies," Ebert says. "That's different from losing your latest word-processing document."

To convince other skeptics, Compaq may have to become more like the computer behemoths it is trying to displace. For example, it may add sales and support divisions with expertise in vertical markets, from education to health care--something IBM already offers big customers. But Compaq CEO Eckhard Pfeiffer acknowledges that "this is new territory, and we need to figure out many pieces of the puzzle."

They'll have to figure it out fast. If Compaq can't persuade corporate clients that it can handle the support customers are sure to demand, it will need more than an Armada to conquer this new world.