Wow, this is a neat trick.
Compaq Says the Sub-$1,000 PC
Is Now Its Most Profitable Model
By EVAN RAMSTAD
Staff Reporter of THE WALL STREET JOURNAL
Compaq Computer Corp. said its cheapest computer is now its most profitable consumer personal computer, a surprising change in an industry where low prices have long been associated with slim profits.
Accelerating sales and a sharp drop in costs pushed the margin on Compaq's $899 computer, which is also its biggest seller, above its more expensive consumer PCs, said Rod Schrock, vice president of Compaq's consumer division. "The big misconception is we make a lower gross margin in the sub-$1,000 market," Mr. Schrock said. "For the consumer business, those are the most profitable desktops."
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In addition, Compaq benefits when component prices fall faster than selling prices, as they have recently. Mr. Schrock said Compaq is paying 42% less for home PC components now than it was a year ago. But the average selling price for a store-bought PC is down 18%, according to ZD Market Intelligence, a La Jolla, Calif., market-research firm.
Through the first five months of the year, the period for which the latest data are available, Compaq led the U.S. retail market with a 32% share in desktop systems; about 46% of its models sold for less than $1,000, according to ZD Market Intelligence.
For PC makers, the home market for years has produced the slimmest profit margins, usually well under 10%. However, Compaq Chief Executive Officer Eckhard Pfeiffer said in April that its consumer division had reached the double-digit profit-margin range and last month said the unit was "doing a fabulous job."
Compaq's home PC sales in the U.S. fell behind Hewlett-Packard Co. in May as it cleared distribution channels for the rollout of a new line in June. But, unlike the commercial PC operation, Compaq's consumer unit didn't suffer from inventory buildups that forced an unprecedented two-week factory shutdown in April. |
