January 28, 2000
Compaq Reveals Some Costs
Of 'Indirect' Sales Method
By BOB SECHLER
Dow Jones Newswires
HOUSTON, Texas -- Compaq Computer Corp. revealed for the first
time Friday some of the steep costs associated with its traditional "indirect"
method of selling products.
Rival Dell Computer Corp. has won accolades for its direct-to-consumer
distribution method, which cuts out the so-called "channel," or third-party
resellers.
Mike Winkler, a Compaq senior vice president in charge of commercial
personal computing, said Friday that the indirect distribution method costs
from 13.5% to 15.5% of product revenue, compared with 2% for the
more efficient direct method.
He made the comment during a meeting with
financial analysts at Compaq's corporate
headquarters here.
"This is fundamentally what the industry is dealing with," Mr. Winkler said.
"Anyone who sells directly makes money, anyone who sells indirect loses
money."
Compaq has been struggling to increase its percentage of products sold
directly. Earlier this month, the company boosted its ability to ship
built-to-order products quickly and directly to customers by agreeing to
pay $370 million for the custom-PC operations of Inacom Corp., an
Omaha, Neb., computer-assembly company.
Compaq met its goal of selling 25% of its products online and by phone by
the end of 1999 and is aiming for 40% by the end of the year.
Still, Compaq officials said they see a role for the indirect sales method in
the future in terms of increasing product reach and accommodating buyers
who want the support of local resellers.
Compaq, faulted in the past for a perceived failure to capitalize on the
potential of the Internet, also tried to clarify its online strategy.
New Chief Executive Michael D. Capellas detailed the company's
"Everything to the Internet" strategy, saying all Compaq businesses are in
some way linked to the Internet, through providing servers and other
infrastructure, new Web-enabled access devices and customer service.
Mr. Capellas also said he has a goal of making Compaq the No. 1 seller
of Internet-access devices. Those devices are a growing range of offerings,
including mobile phones and music players, that are designed to access the
Web without a traditional PC.
Along those lines, Compaq will begin shipping its new iPaq this week, a
sleek-looking, Internet-ready machine meant to compete with Apple
Computer Inc.'s similarly named iMac PC. A display of Compaq's iPaq at
Friday's conference drew a crowd of analysts.
For much of Friday's three-hour presentation, however, Mr. Capellas and
other executives simply detailed the lengthy list of leading Internet-related
products and services that Compaq already offers.
Former Chief Executive Eckhard Pfeiffer unveiled the company's
"eBusiness" initiative last year. But Mr. Pfeiffer was ousted shortly
thereafter, due to Compaq's poor performance and a perceived failure to
articulate a coherent message.
Mr. Capellas, who replaced Mr. Pfeiffer six months ago and initially kept a
low profile, was responding partly to that former criticism with Friday's
event, detailing the company's vision for its three business groups:
consumer, business and large-scale corporate computing and e-commerce
services.
The company views itself as well positioned for what's expected to be an
acceleration in corporate Internet spending as e-commerce continues to
boom. In addition, Compaq thinks the pending roll-out of Microsoft
Corp.'s Windows 2000 operating system will boost corporate sales.
Compaq officials also pointed out that their company already is the
market-share leader for both computer servers and storage devices, which
are integral to the continued expansion of e-commerce. According to
third-quarter statistics provided by the company, Compaq has a 33%
market share for computer servers and a 23% market share for storage
devices.
In related news, Compaq said it expects its new, high-speed "Wildfire" line
of servers to generate about $1 billion in new revenue this year. The
company said most of that will come in the third and fourth quarters.
Write to Bob Sechler at bob.sechler@dowjones.com |
