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Technology Stocks : Compaq
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To: Elwood P. Dowd who wrote (40860)12/23/1998 12:31:00 PM
From: rudedog   of 97611
 
CPQ's shift to direct is bound to have some impact on the channels, including of course Ingram. Also, the reduction in price protection from many months in '97 to only a week or so in '98 means that CPQ is no longer subsidizing channel inventory.

The combination of these changes will shift $$ from the channel to CPQ - something like 7% to 9% in margin dollars. This improves CPQ's cost structure, allows them to remain competitive on price while competing against the direct vendors, and improves profits. This was the whole point of the changes in channel and inventory policy that CPQ undertook this year.

I have said for a while that this puts the channels in a 'sqeeze play' - they will have to get a whole lot more efficient to stay healthy. Ingram was one of the companies that was pushing its own 'white box' strategy. My feeling is that the channel vendors will inevitably be less efficient than the big boys and I thought their white box plans were mostly defensive. They need to do something different to find a niche - becoming the number 12 player in a highly competitive market is hardly the way to success.

But I don't think it is particularly bad for CPQ. If you go back to posts here and on the DELL thread earlier this year you will see that I debated this with Kelley and Chuz, who felt that the channel partners would 1) shift to HP and 2) compete with CPQ. Neither of those things solves the channel problems, and neither hurts CPQ.
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