Compaq Message Board - Msg: 9714208

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Technology Stocks : Compaq

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To: Aitch who wrote (61965)	5/24/1999 8:26:00 AM
From: rupert1	Read Replies (1) of 97611

Aitch: I was surprised by that Don Young piece. That is not how I interpet the motivation or the effect of the COMPAQ DAP. Furthermore, I read here recently that DELL is effectively using Distributors in some of its sales effort. CPQ: Is Compaq Giving Up? 21-May-99 PaineWebber (Don Young) It appears that Compaq has completely dis-intermediated the dealer while greatly enhancing the distributor's position. The distributor's position is greatly enhanced - that was the point of the program. But it is wrong to say that the dealers have been completely "dis-intermediated" - an ugly and probably non-existent word. He should read the COMPAQ release about the extra support now available for dealers. 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. So what! COMPAQ explicitly said it was not adopting the Direct Model, as employed by DELL and Gateway. It was adopting the DAP model in partnerhsip with its own version of Direct. We are lost to explain this action.... How about starting with COMPAQ's explanantion. ....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. COMPAQ has made it very clear that it is going to protect its brand in the terms and conditions it lays down for all distributors and re-sellers. Dell does use distributors where it has to. This also creates a serious channel inventory problem. There is now a need to liquidate all the inventory that was in the dealers hands. No it doesn't. The inventory in channel is 3/4 weeks, only 5% of which is slow moving. All participants have until August to move existing inventory and transition to the new distribution model. Young seems to have ignored COMPAQ's statements on this. 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. This would have been a threat if they had restricted themselves to one Distributor. But there are 4 and others in the wings willing to work with COMPAQ should any of the 4 prove recalcitrant. Young makes no references to the terms and conditions of this Alliance - I have not seen them, in detail, but it would be extraordinary if COMPAQ had not anticipated such developments and protected against them in the terms and conditions. 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. Non sequitors. 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. Ridiculous! The only way it could have reduced dependency on distributors and dealers would be to go 100% Direct. They don't want to go 100% Direct for all the reasons they gave. This analyst is wedded to the DELL model and he cannot seem to see the alternative let alone understand it.

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