Compaq's widely expected sell off of Internet arm Altavista is a bid to lay its hands on cash to help with financial challenges, an industry analyst said today.
A statement is expected later today from Compaq on speculation that it is to sell off Altavista, which the company acquired with Digital at the beginning of last year. The sale, to Internet investment company CMGI, is also expected to include other Compaq Web properties, such as ecommerce site Shopping.com.
Peter Lemon, research director at IDC, commented: "The sale is probably related to the extraordinary charges Compaq warned it would take in the second and third quarters of this year. There's a lot of re-engineering going on at Compaq at the moment, and it needs fast cash to keep its share holders happy."
He continued: "Compaq has failed to get together the portal strategy it had planned for Altavista and it probably took one look at the current valuation of Internet stocks and decided to get rid of it quickly."
If Compaq goes ahead with the deal, analysts said it would mark a complete turnaround in strategy, as earlier this year the company said it would be spinning off Altavista in an initial public share offering.
"Selling Altavista would be an odd way of going about it after all Compaq has said, it would be like selling the family silver," commented Adam Daum, senior analyst at Dataquest.
"They may have taken their eye off the ball as far as the PC market goes, but in the right hands Altavista is a very powerful property," he added.
Compaq has been going through a difficult period over the last few months. It has been losing money, sales have fallen and it still has not managed to replace long term chief executive Eckhard Pfeiffer who was dismissed in April. Daum, however, said he did not believe these were good enough reasons for getting rid of Altavista.
"Compaq has had problems digesting Digital and maybe someone at a senior level has decided it is time for drastic action, but it would not make sound sense," he said.
However, the acquisition would be a huge asset to rumoured purchaser CMGI, which has its fingers in a lot of Internet pies including Lycos, Engage Technologies and Adsmart.
The addition of a strong brands, such as Altavista and ecommerce site Shopping.com, would enable CMGI to converge its 40 Web properties and emerge as a serious contender to rival Yahoo.
CMGI owns around 18 per cent of Internet portal Lycos and actively campaigned against the proposed takeover by USA Networks, which finally fell through last month. There was speculation at the time that CMGI was interested in buying Lycos itself, but the portal is prohibited from embarking on takeover talks until 15 July.
Last month CMGI received a $200 million investment from Gateway, which sought the company's Internet expertise to bolster its ecommerce activities. In addition, both Microsoft and Intel own minority stakes in CMGI.
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