Under the contract, Compaq will supply both Windows-based PC and server hardware as well as support services for the U.S. Postal Service over the next five years, with an option to renew for another five years.
Compaq estimates the deal, which makes it the Postal Service's only source for Windows-based hardware and services, is worth between $1.5 billion and $2 billon if it runs for the full 10 years. The estimate is based on a similar seven-year deal it previously had with the agency, during which Compaq delivered about $1.2 million worth of hardware, software and services.
Compaq has, in its own words, been hit by a "perfect storm" that combines the effects of the slow PC market, further slowdowns in the wake of the Sept. 11 terrorist attacks and uncertainty among its customers over its proposed merger with Hewlett-Packard.
The new contract may provide a much-needed shot in the arm for the Houston-based company. Peter Blackmore, Compaq's executive vice president of sales and services, characterized the win as big one for Compaq.
"With all the negativity generated in some quarters by the HP-Compaq deal, this could certainly qualify as a high point for the quarter," said John Madden, analyst with Summit Strategies.
It sounds like the U.S. Postal Service was looking for "something more than an upgrade," Madden said. "It sounds like the Post Office was looking for a long-term strategic technology partner."
Blackmore said that while Compaq was "very competitively priced with the hardware," service clinched the Postal Service deal. He touted Compaq's "program management," the way in which the relationship is managed and important elements, such as technical support, are delivered.
"That's the key differentiating factor," Blackmore said.
That's true for all large computing companies. Large contracts centering on services, from fixing broken hardware to consulting, have become the new lifeblood of the PC industry. For the client, they provide an extra set of hands for operations that would otherwise have to be performed in-house. For PC makers, such contracts provide a relatively steady source of income for an extended period of time.
The 2001 slowdown in the PC market has only made services more important to PC makers.
Earlier this year, and before the proposed Compaq-HP merger, Achim Kuttler, director of PC clients for HP, told CNET News.com that there were a limited number of large contracts up for bid that could "make" any large computer company's year. These contracts involved placing and maintaining 20,000 to 30,000 PCs within a company.
Price has also become an important consideration in these contracts. Customers automatically expect low pricing these days, executives at large PC makers say.
"The procurement department is getting more involved," Kuttler said. "It is more price-conscious. For the sales force, they must establish good relationships with the IT department and the procurement departments."
Compaq beat out the list of the "usual suspects" who make PC hardware to gain the Postal Service contract, a company representative said.
CNET News.com's Michael Kanellos contributed to this report.