I agree that a 500MM write-off for 250,000 units in the channel doesn't add up. Notice however the paragraph below which says that ... a spot check of 7 distributors's online inventory systems shows CPQ had approx 250,000 pcs in stock...
250,000 is a drop in the bucket for CPQ... the total for all of CPQ's distributors must be much greater... i haven't done the math, but i bet it jives better with the 500MM shortfall.
Compaq Slashes PC Prices To Clear Out Inventory
(03/16/98; 12:58 p.m. EST)
By Joe Wilcox and Kimberly Caisse, Computer Reseller News
Compaq unleashed Monday a barrage of price cuts and promotions aimed at clearing out a channel stuffed with inventory. The cuts are significant, because they represent the first serious offering of sub-$1,000 commercial-desktop systems by a major PC maker.
The Houston-based company cut the price of its Deskpro 2000s by up to 11 percent and Deskpro 4000 models by up to 10 percent, which means the 2000 models now start at $859 and the 4000 models, at $979. The company also is throwing in a free V50 monitor with select systems, which brings four complete 4000 systems about $50 above or below the $1,000 price point.
The free monitor promotion affects at least 11 desktop models: Deskpro 2000 6233X/2100, 6233X/3200/CDS, 6266X/3200/CDS, 6266X/3200/CDS minitower, and 6300X/3200/CDS minitower units; Deskpro 4000S 5166X/2100, 5200X/2100, and 5233X/2100 units; and Deskpro 4000N 5166X/1600, 5200X/1600, and 5233X/2100 units.
Compaq said its Deskpro price plunge is more about clearing excess stock than breaking the $1,000 barrier. On March 6, the company stunned Wall Street by saying it will not post a profit for the first quarter with sales that were flat over the year-ago quarter. Compaq officials said the company overestimated demand on commercial PCs and servers and shipped too much product.
"If you look at the whole marketing situation, you've got price, you've got promotion, you've got aggressive advertising, you've got aggressive [public relations] -- you look at trade-ins," said Mike Pocock, vice president of channel sales at Compaq. "It's a total equation. It's not a single piece. What we shared with the channel is that these are the kind of activities we feel are necessary to achieve our objective" of reducing inventory.
According to a March 12 spot check of seven distributors' online inventory systems, Compaq had approximately 250,000 Pentium, Pentium Pro, and Pentium II desktop systems in stock, which was more than double the combined number from IBM and Hewlett-Packard. The bulk of those -- 174,000 -- are Pentium and Pentium MMX systems.
Compaq officials said Pentium MMX systems are the best-selling models, while Pentium II sales are just ramping up.
Ed Ellett, Compaq's director of desktop marketing, said the company saw stronger sales in January and February, mainly of Deskpro 4000s with Pentium II processors that were typically priced between $1,800 and $2,200.
A random spot check revealed deep discounts on Compaq's oldest models. Two companies were offering the Deskpro 2000 5166/1200, a 166-MHz Pentium system with 16 megabytes of extended data out memory and 1.2-gigabyte hard drive, for $499 without a monitor.
One frustrated value-added reseller (VAR) in Maryland, who did not want to be identified, said the steps Compaq has taken put the price-performance relationship out of kilter and makes it difficult for smaller players to provide quality systems at a competitive price. He said Compaq's move to clear out inventory could hurt the commercial PC market and create unrealistic expectations about costs.
Tony Audus, director of purchasing at Technology Partners, a VAR in Ann Arbor, Mich., said Compaq is going to have to continue to offer sub-$1,000 commercial desktops. "They're certainly going to have to maintain this [price] segment for businesses," he said. "The obvious next step is to introduce a new system with more features." But Audus doubted these lower-priced systems will weaken the credibility of Compaq products. "We're happy to sell Compaq products no matter what the price," he said.
Ellett said Compaq has not seen the cannibalization of the high end since it introduced sub-$1,000 non-commercial desktops in July. He said Compaq and other PC vendors are not going into the sub-$1000 price band if it will lower its gross margins. "In that respect, [the industry] has not seen a mass migration to the sub-$1,000 [commercial] segment," he said.
The commercial-desktop price plunge follows similar actions on the server side, where Compaq slashed prices up to 22 percent on selected models, offered up to $300 rebates on select ProSignia 200s, ProLiant 850Rs, and ProLiant 2500s, and doubled memory for free on select ProSignia 200 and ProLiant 800, 850R, 1600, 2500, and 3000 models. <Picture: TW> |
