Compaq's high end systems and services businesses will be badly hit by its upcoming job slashing exercise, according to a leading industry analyst.
Following worse that expected second quarter results, Compaq last week said it plans to lay off 8000 people or 11 per cent of its work force in a bid to control costs.
In a new report from Gartner Group, senior analyst Charles Smulders said: "There is still significant cost to be taken out of these businesses and it is here that many of the redundancies will take place."
Compaq said both last week and today that it is unable to say exactly which areas of the company will be affected by the cuts but said no "customer facing" positions would be hit. The majority of positions hit will be in administration, Compaq said.
A spokesperson for the company added: "Compaq does not comment on Gartner speculation."
Full details of the job losses are expected to be revealed later this month.
In addition to the job cuts, Compaq also recently announced a major restructuring plan that divides the company into three global business units, each of which will have separate profit and loss accountability.
"The restructuring signals that Compaq is now serious about changing the way it does business," said Smulders.
"From a PC and Intel based server perspective, over the last two years Compaq has failed to take sufficient cost out of its supply chain and until recently has put reseller satisfaction ahead of user satisfaction and these failures have made it less competitive."
Smulders added that in the second quarter, Compaq reported 3.5 weeks of inventory. "If on average, finished inventory loses two per cent of its value per week in this low margin business, it is easy to see that even this level is a significant drain on profitability and overall competitiveness."
He said that Compaq's move to a more direct sales model shows the company has a new way of operating. "But this will only work if Compaq can put the infrastructure in place to fulfil."
Compaq came under fire again for its slow reaction to the growth of the Internet. Smulders said that over the last two years the company has been to busy focussing on the integration of Digital and paid very little attention to the net.
"In that time its competitors, particularly IBM and Sun, have positioned themselves as Internet solutions providers, leaving Compaq looking increasingly like an old world computer company."
He concluded: "How Compaq pushes forward with its Internet strategy will be one of the most critical factors in its fortunes."
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