Compaq's Capellas Stands Behind HP Deal

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Compaq Computer Corp. chief executive Michael Capellas Friday said that the fundamentals for an economic recovery in the second half of the year are "in place," and reaffirmed his commitment to the proposed $25 billion merger with Hewlett-Packard Co.

Capellas, speaking in New York during the company's annual meeting with investors and analysts, said that the planned merger with competitor HP -- which has come under fire from investors and members of HP's founding families -- makes good business sense.

He brushed aside talk of the family dissent, saying that "both the retail investor and institutional investor are very smart people and understand this business, and they will weigh in."

Capellas made the comments when questioned about an advertisement that David Packard, son of HP's co-founder, took out in the Wall Street Journal earlier this week that criticized HP's merger plans.

Capellas, who kicked off the meeting with a 40-minute overview of Compaq's business strategy, said he will discuss the merger more fully in an afternoon session, scheduled to begin at 1 p.m. ET.

Capellas also said corporate technology budgets are up marginally so far this year, and that growth in technology spending will be disproportionately stronger than the overall recovery.

He said he expects infrastructure, security, Web integration, and customer relationship management to be areas of growth. and sees overall information technology spending recovering in the second half of the year.

In addition, he said, "I think there is pent-up demand in the PC life cycle," referring to the typical three-to-four year replacement cycle for personal computers.

Capellas said he is more optimistic than some industry analysts about the PC business growing this year. All the same, he sees the overall PC market contracting by 3 percent in 2002.

Last year, the PC market shrank for the first time since 1985. And No. 1 PC maker Dell Computer Corp. launched an aggressive price war that has hurt Compaq, HP, and Gateway Inc.

Shares of Compaq fell 11 cents, or less than 1 percent, to $11.94 in active trade on the New York Stock Exchange.

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