Compaq Message Board - Msg: 9713582

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Technology Stocks : Compaq

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To: hlpinout who wrote (61964)	5/24/1999 7:38:00 AM
From: Aitch	Read Replies (1) of 97611

Hi hio and thread... CPQ: Is Compaq Giving Up? 21-May-99 PaineWebber (Don Young) KEY POINTS One week after Compaq's new distribution announcement, we are more worried about the action and what the strategy may signal. It appears that Compaq has completely dis-intermediated the dealer while greatly enhancing the distributor's position. Their has been a wholesale exit from the hardware dealer business as displayed by Entex and GE ITS recent divestitures. The strength of the Direct channel model is the integration of the brand and the channel as Dell & GTW have so successfully done - this is a move in the opposite direction. We are lost to explain this action beyond Compaq management giving up on establishing an efficient distribution model and instead turning to the distributor for that role. Unfortunately, we believe this distribution function is too important and an integral part of the value added change in the PC business model. To put it bluntly - Dell does not use distributors and never will. This also creates a serious channel inventory problem. There is now a need to liquidate all the inventory that was in the dealers hands. This creates a long term threat that the distributor channel will eventually be in the position to dis-intermediate Compaq. If the essence of a PC company is logistics and Compaq has outsourced a big part of logistics to the distributors - the distributors can eventually cut out Compaq. We remain concerned about the outlook for PC hardware industry. We believe these recent distribution moves by Compaq are a step in the wrong direction, will aggravate the already poor industry pricing environment and set up Compaq to lose control over the distribution channel. What should Compaq have done? Reduce its dependency on distributors and dealers for the logistics and distribution of its products and instead shift their role to providing services. Be more Direct.

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