The Wall Street Journal Interactive Edition -- March 3, 1998
Move to Cheaper PC Prices
Has Compaq Feeling Pinch
By CHRISTOPHER GRIMES
Dow Jones Newswires
Compaq Computer Corp., which jump-started the market for sub-$1,000
personal computers, is feeling the pinch as its rivals cut their desktop
prices.
Such moves by competitors like Hewlett-Packard Co. and International
Business Machines Corp. are creating what Compaq Chief Financial
Officer Earl Mason characterized Monday as an "aggressive" pricing
climate in the PC market.
To fend this off, analysts say, the Houston PC
maker is offering substantial discounts to
resellers to keep its rivals from taking over its
shelf space.
"If [Compaq] wants to face a challenge to its market position, they have to
respond and make sure that their distributors have their products on the
shelves," said Daniel Kunstler of J.P. Morgan Securities Inc. "That's part
of remaining competitive in the marketplace. Is it helpful to this quarter?
No."
The usually upbeat Mr. Mason described a difficult PC market to
attendees of Merrill Lynch's technology conference in San Jose, Calif., on
Monday, according to analysts' accounts.
They said efforts by Compaq to streamline its distribution process aren't
coming along as well as planned. The company has been working to
reduce the amount of time its computers spend in the inventory channel,
but they are still in warehouses for an average of six weeks, more than its
target of two to four weeks.
"Other players like H-P are doing a good job of reducing channel
inventories," said Salomon Smith Barney analyst Richard Gardner, who
added that Compaq's inventory "has come down -- just not enough.
Relative to other vendors, Compaq's has not come down as quickly."
Compaq, the world-wide PC sales leader, is fighting off Hewlett-Packard
and Dell Computer Corp., both of whom have their eyes on the top
market position.
Bears on Compaq say the company is making deals with distributors to hit
revenue targets for the current quarter.
One high-tech investor with a short position on the stock said the company
typically waits until the end of the quarter to begin offering incentives to
resellers. But he said Compaq started offering "some strong incentives to
take more product than they usually do," citing sources with resellers.
"What was disconcerting was it was much earlier in the quarter than they
usually do that," said the source with the short position. "The feeling was
that Compaq was desperate to juice their revenues."
But others said Compaq is simply ceding profit margins in favor of market
share.
"I don't think they're playing that game" of pushing inventories out to pad
the quarterly revenue, Mr. Kunstler said. "They're protecting their
competitive position." |
