Here's an from thestreet.com regarding CPQ's distributor consolidation.
Compaqting the PC Distributor Business
By Jim Seymour
Special to TheStreet.com
5/10/99 2:29 PM ET
Compaq's (CPQ:NYSE) widely anticipated announcement Monday that it's cutting its list of authorized distributors by 90% -- Ingram Micro (IM:NYSE), Tech Data (TECD:Nasdaq), Inacom (ICO:NYSE) and Merisel (MSEL:Nasdaq) seem to be the four survivors, from an utterly unmanageable 40 -- is a nice reinforcement of Chairman Ben Rosen's oft-quoted determination to be much more than a caretaker, while the company searches for a replacement for the deposed Eckhard Pfeiffer.
But it's a lot more important than just a positioning statement for Rosen. Compaq has got to rebuild its distribution channels, with an emphasis on direct sales -- something it's never done well. So despite brave words about much closer and more intimate relationships with the surviving Four Mohicans, Compaq's gain here mainly lies mainly in reducing, short-term, its reliance on distributors, period. The fewer distributors you have, the fewer angry phone calls when you very visibly shift away from channel distribution. Plus, with only four, not 40, firms competing for the limited profit that will remain in distributing Compaq products, the business remains worthwhile longer for those in the winner's circle.
But no one should mistake this move as a vote of confidence in a bright future for the present, aging distribution model for PCs.
Sure, PC makers will need some channel distribution for a while longer. But as the relative importance of big box-movers such as Best Buy (BBY:NYSE), Office Depot (ODP:NYSE) and CompUSA (CPU:NYSE) increases to Compaq, IBM (IBM:NYSE) and a few other big names -- with most smaller resellers moving to so-called "white box" house-brand systems and the direct model continuing to squeeze all retail PC sales hard -- computer distribution is not a good place to be. PC makers that rely on channel distribution will increasingly sell and ship directly to retailers if they want to keep their business. (Of course, they deny that; you and I would, too.)
Meanwhile the alternative paths to making dough out of PCs that distributors have tried -- such as so-called "channel assembly," in which big distributors such as MicroAge (MICA:Nasdaq) actually build the IBM Aptivas and other computers they ship to resellers -- have largely failed, leaving only losses and abraded relations with PC brand-name owners. (How can we call them "manufacturers" if their distributors actually build their machines for them?)
It's hard to spot a long-term winner among PC distributors, even among the four chosen by Compaq. Take a look at the performance charts of Compaq's four choices -- pretty clearly the strongest performers in their industry -- over the last year, and you'll see that there's an overall downward trend in all four.
There's a reason.
Likely ahead: ultimately profitless consolidation.
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