9:47 PM 4/23/1998 Compaq kiosk sales more direct
Company planning large stock buyback
By DWIGHT SILVERMAN
Copyright 1998 Houston Chronicle
Compaq Computer Corp. showed off at its annual stockholders' meeting Thursday a test program that lets customers custom-configure and buy a Presario PC from electronic kiosks in retail stores.
The kiosks, which are being tested in Best Buy and Office Depot stores, bring Compaq closer to selling computers directly to customers, while not alienating retailers.
Also at the meeting, Compaq Chairman Ben Rosen said the company would buy back up to 100 million shares of its stock, or about 6.7 percent of its outstanding 1.5 billion shares.
Rosen said the move is "a vote of confidence" in Compaq by the board. It's also a move to shore up the price of Compaq's stock, which has fallen in past months as investors worry about a glut of inventory that has resulted in flat profits in the first quarter.
Houston-based Compaq's stock closed Thursday at 28 7/8, up 3/8. It was the most active issue on the New York Stock Exchange, with a volume of more than 34 million shares traded.
Compaq's problems stem from fierce pricing from competitors such as Round Rock-based Dell Computer, which sells PCs directly to individuals and corporations. Compaq goes through commercial resellers and retailers, and its prices must allow for profits for those middlemen.
The company has been trying to streamline its processes to mimic those of direct sellers, and the electronic kiosk scheme is part of that initiative.
The kiosk uses a Presario 4800 series computer -- Compaq's top-of-the-line consumer machine -- outfitted with a specialized World Wide Web browser. Customers see an ordering screen that lets them first choose from one of four models. They can then customize their selection by changing, adding or removing features.
Customers pay for the computer at the store's checkout, and Compaq is notified and an order generated. The systems are built at the company's Houston factory and shipped within a week.
The retailer hosting the kiosk receives a cut for every sale made on it. One of the units is set up at the Best Buy in The Woodlands, a Compaq spokesman said.
Laurie L. Bauer, a Best Buy spokeswoman, said the pilot program involves 14 stores. If successful, it will be expanded and could include other vendors beside Compaq, she said.
"We need to be able to offer to customers who have more technical knowledge the ability to configure their own machines," Bauer said. "This is aimed at high-end PC buyers who otherwise would have gone through mail-order outlets."
Compaq arch-rival Dell has been making a push for consumer business recently, hiring an executive away from catalog veteran Lands' End to run a new consumer division.
Bill Ablondi, an analyst with IDC/Link in New York, said the kiosks will help Compaq "to extend its reach to the customer one step at a time."
"They can't sell direct immediately because they can't deal with the channel backlash," Ablondi said.
He said the kiosks will appeal to customers who like the idea of buying a computer online, "but still like to touch and feel the product and get the assurance from someone that they've made the right choice."
But Charles Smulders, an analyst with Dataquest in San Jose, Calif., said the kiosk concept doesn't serve the best interest of the consumer or the retailer.
"While the consumer will get a customized box, they do not enjoy one of the benefits of retail which is to leave the store with the product on the same day," Smulders said. "Why not just order over the Web, rather than going down to the store?"
While its consumer business has been brisk, Compaq has been struggling to clear a glut of business computers sitting on the shelves of its North American resellers. To move those PCs, Compaq has cut prices and given away components, such as monitors and extra memory.
Those moves in the first quarter dried up Compaq's profits, and the company's managers have warned that the second quarter won't be much better.
During the annual meeting, Rosen came close to apologizing to an overflow crowd of stockholders for the company's first-quarter performance.
"We simply didn't execute well," he said.
Eckhard Pfeiffer, Compaq's chief executive, told the crowd that the company is changing its emphasis from "sales in" -- sales to resellers -- to "sales out," or sales by resellers to actual customers.
That process will be complete by the end of the second quarter, he said.
Also at the meeting Thursday:
ú Compaq gave attendees an inadvertent look at a new product planned for unveiling this summer. A flat-panel display that will be sold through retailers was used as the background image for a slide on the company's consumer business. Rod Schrock, senior vice president for the Presario division, confirmed Compaq would be offering a flat-panel display to consumers this year.
ú Stockholder Douglas Moore, who described himself as a retired Methodist minister who now owns an energy company, castigated Compaq because it does not have an African American on its board. When told that the company always is looking to expand the diversity of the board, Moore, who is black, became angry and shouted: "I get so tired of hearing that excuse! That's not a rational argument that you are just looking around!" He said he owns stock in 81 companies, and has complained to the others as well about a lack of diversity on their boards. |
