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Compaq selling AltaVista?
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June 23, 1999: 2:55 p.m. ET
PC maker said in talks with CMGI about selling its Internet holdings
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NEW YORK (CNNfn) - Compaq Computer Corp. is in talks with CMGI Inc, an Internet investment company, about selling its popular search engine AltaVista.
As the world's largest personal computer maker struggles with quarterly losses and suffering stock prices, the company is considering selling its Internet holdings, sources close to the deal told CNNfn.
The talks are ongoing and it's unlikely a deal would be announced before next week, the sources said.
It wouldn't be the first time the company has grappled with how to handle AltaVista. In January, it announced it would divest the Internet navigation tool in an initial public offering, a plan that has had fits and starts. Its most recent plan was to spin off 15 percent to shareholders, with the company maintaining control.
Compaq spokesman Jim Finlaw would neither confirm nor deny the rumors of a sale, saying "the company does not comment on market rumors or speculation."
CMGI (CMGI) officials refused comment as well. The Andover, Mass.-based company operates Internet and direct marketing companies and also runs Internet venture funds.
CMGI has shown interest in the realm of search engines and portals, two Web entities that are becoming increasingly synonymous. It already owns an 18 percent stake in Lycos.
A sale of AltaVista would end a tumultuous ride for Compaq, which picked up the search engine when it paid $8.4 billion for its creator, Digital Equipment Corp., in 1998.
The company's acquisition of Digital Equipment, which it touted highly at the time, was in some ways the beginning of a slide for the company. The sheer size of the deal hurt Compaq's earnings and resources and continues to do so.
Fixing its business is a big task for Compaq. Last week, the company warned Wall Street it would lose 15 cents per share in the second quarter, while analysts had predicted it would earn 20 cents per share.
At the time, the company also said it would restructure its operations and cut staff, but made no mention of how its Internet interests would be handled.
Earlier this year, Compaq had issued another earnings warning, quickly followed by the ouster of its longtime chief executive officer, Eckhard Pfeiffer.
Once the hotshot of the computer industry, the company has struggled over the past year and its stock has fallen more than 50 percent since January. In particular, it hasn't proved adept at handling the increasingly tight profit margins of the personal computer market.
In addition, it hasn't been able to reap the reward of direct selling, a la Dell Computer, for fear of alienating its own force of resellers, the very people who helped build Compaq's sales originally.
Unexplored opportunities
The company has failed to capitalize on AltaVista's potential, according to Phil Rueppel, computer analyst at Deutsche Bank Alex. Brown.
"Compaq management has never really figured out what they want to do with the company," Rueppel said.
Compaq's Internet division's fundamentals have continued to deteriorate and its management has seen an exodus, he added.
Despite the problems Compaq (CPQ)has experienced with the AltaVista unit, analysts feel it may be shortsighted for the company to unload it.
Portals, basically first-stop sites for Web users that guide them to other parts of the Internet, have become important to computer makers.
PC manufacturers can use them not only to funnel potential customers to their products, but also sell lucrative targeted advertising on them.
"If Compaq sold AltaVista, the company could get back to fixing their business, but it would be beneficial for Compaq to have a portal site as it provides good revenue streams and continuing synergies within the company," said Art Russell, technology analyst at Edward Jones.
Despite the troubles it has faced with AltaVista, the unit could be an important part of returning to form. Personal computer makers are looking for new revenue strategies in the wake of declining PC sales.
Since computer makers often pre-install various software and Internet service provider offers onto their desktops, they can have a huge impact on how users enter the Web, Russell said.
Compaq, he said, still hasn't fully capitalized on the potential of AltaVista as a portal and may be better served by investigating its use further before sending it on its way. 
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