Helpinout alerted me to this article in the UK Financial Times
COMPAQ: Group rethinks US strategy
By Louise Kehoe in San Francisco
Compaq Computer, the world's largest personal computer company, is expected to announce big changes to its US distribution strategy today, in the wake of weak first-quarter sales.
In the first significant change since Eckhard Pfeiffer was ousted as chief executive last month, Compaq will sharply reduce the number of US distributors that resell its products, according to analysts, and switch some of its sales to internet retailers.
Compaq has been struggling to compete with "direct" PC sellers, such as Dell Computer, which take orders over the internet and then tailor PCs to specific requirements. This approach has enabled Dell to have lower sales costs and to minimise inventories.
In contrast, Compaq had been reluctant to break faith with the distributors and resellers that have been its primary sales channel since it was formed in 1982.
By reducing its number of distributors Compaq would be able to seek better terms from those that remain, analysts said. Simplifying distribution would also give Compaq a clearer picture of demand, said Ashok Kumar of US Bancorp Piper Jaffray.
However, the changes may cause "more chaos than momentum for business in the current quarter", warned Steve Milunovich of Merrill Lynch, who still believed Compaq was headed "in the right long-term direction".
It is not yet clear whether Compaq plans to follow the changes in its US sales channels with similar moves in Europe and Asia. However, if distributors outside the US feel insecure they may be tempted to switch to other PC suppliers, undermining Compaq's sales.
Compaq still faces other serious challenges, said Vince Tobkin, head of Bain & Company's technology practice. In particular, the company has had difficulties in combining its PC business with Digital Equipment's "big metal" or large-scale computer business. "Compaq must preserve two cultures within one company. No one has succeeded in doing that yet," he said. |
