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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: JungleCat who wrote (31345)	8/20/1998 12:10:00 PM
From: JWASS	Respond to of 97611

THE DAY AHEAD: Why Compaq won't beat Dell By Larry Dignan TDAIN August 20, 1998 7:06am Inter@ctive Investor Dell Computer Corp's ability to impress Wall Street gets kind of boring if you're not a shareholder, but get used to it. There are no chinks in Dell's armor and until Compaq Computer Corp. gets its act together there won't be any. Wall Street analysts have run out of superlatives to describe Dell so now they are trying analogies. Pick your analogy when comparing Dell Computer Corp. (Nasdaq: DELL) to its other competitors, namely Compaq Computer Corp. (Nasdaq: CPQ). <Picture> <Picture> What are Compaq's chances vs. Dell? Add your comments to the bottom of this page. <Picture> <Picture> <Picture> Dell is a kickboxer, deft and agile, and Compaq is a sumo wrestler. Don't like that one, try this: Dell's the one-eyed man in the land of the blind PC companies. Or maybe even Dell's the only horse with legs in a two horse race. <Picture>o Subscribeo Commentaryo Stocks To Watcho Market Previewo Economic Newso Market Summaryo Headline Scano New Filingso The Day Ahead Archive You get the idea. So why is Dell so good to justify buying shares even though the stock just gets more expensive? It's simple -- Dell executes and happens to have the business model that every other PC maker wishes it had. As a result, Dell (chart) is on the heels of Compaq as the leading PC vendor in the corporate market. According to second quarter preliminary figures from ZD Market Intelligence, Compaq (chart) has 18 percent of the workplace market share and Dell has 15.5 percent. "There were no surprises in Dell's earnings," said said Lou Mazzucchelli, an analyst with Gerald Klauer Mattison. "What surprises me most is the competition is so lame." So where's the competition? International Business Machines Corp. (NYSE: IBM) has so many things on its plate, the PC business is just an add-on. Hewlett-Packard Co. (NYSE: HWP) is just being itself, which means expenses are high, revenue is flat and complaints about Asia are plentiful. Among the direct sellers, Micron Electronics (Nasdaq: MUEI) is scrappy but small and Gateway Inc. (Nasdaq: GTW) is far removed from the corporate market. That leaves Compaq as the competition. The company, which is getting a lot of attention from Wall Street these days, is trying to get it together, but Sumo wrestlers aren't known to be that quick. Here are a few reasons why Compaq can't compete with Dell. 1. Resellers. The indirect distribution channel has helped Compaq to get where it is today, but won't take it much farther. Dell is a direct seller. It has virtually no inventory and can change prices quickly. Compaq has improved its inventory management, but still isn't as quick as Dell. 2. The peanut gallery. Part two of the reseller problem. If Compaq wants to evolve into a more direct model, resellers whine. Compaq can't cut its channel loose so it waters down its direct marketing efforts. "At some point they will just have to nuke the resellers if they aren't giving anything value added," said Mazzucchelli. 3. "We invented it" syndrome. Dell can go with best-of-breed products. Compaq has to worry about paying lip service products such as the Alpha chip and other things that are doomed to fail. Compaq also has to integrate Digital's technology and other acquired parts. 4. Execution. Going direct is a priority for Compaq with its biggest accounts, but will have trouble according to ZD Market Intelligence. Compaq will have to become customer focused, rework its organization, and dedicate lots of resources to going direct with its big customers. With profit margin pressure, that's bound to be easier said than done. TDAIN