McMannis & Intel Investors - Compaq is switching to OUTSOURCING their German manufacturing - and using 333 MHz Pentium II as the Product.
Paul
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9/16 7:41P (DJ) Compaq Shifts Gears In Germany, Will Outsource PC Production
Story 1202 (CPQ, INTC, I/CPR, I/SEM, N/DJI, N/DJWI, N/ECR, N/EWR, N/UKMR...)
By Bill McIntosh, Staff Reporter
LONDON -(Dow Jones)- Compaq Computer Corp. is to rewrite its business plan for Germany, Europe's largest personal computer market, in a move that may presage longer term changes in the way the computer maker operates.
Compaq (CPQ) has contracted out German market PC manufacturing to Schaefer-IT-Logistics GmbH, a Dresden-based PC maker. Compaq, which ranks 10th in German market PC sales with a negligible 2% market share, is targeting the sub-$1,000 consumer PC market.
"It's a pilot project for Compaq as a whole," Toon Bouten, Compaq's
Consumer Products Group vice president for Europe, Middle East and Africa told Dow Jones Newswires Wednesday. "It's a test for how we work with different business models in different markets."
Schaefer has the capacity to produce 500,000 PCs annually. In the current year, German PC sales are forecast at about 1.7 million units.
For 1,699 marks ($1,003) - including value added tax - Compaq will offer the Presario 5501 Minitower. It features Intel Corp.'s (INTC) 333 megahertz Pentium II micro-processor, 64 megabytes of random-access-memory, a 4.3 gigabyte hardrive and built in CD-ROM drive.
The move follows a $500 million first-quarter profit shortfall and continuing restructuring measures at Compaq to reduce inventories. In recent months, Compaq has cut prices and aggressively promoted sales.
Last week, Compaq told analysts at a Florida briefing that every facet of its strategy is being probed for cost cuts.
In Germany, local assembly models account for 80% of PC sales compared with 68% for Europe overall. Compaq has one-third of global brands' 32% European market share amounting to about 10% of the total market.
"Local assembly is to take advantage of home market needs and access national distribution networks," Bouten said. The revamp will see product life cycles cut to about four weeks from four months, he said.
"It's a model of tremendous turnover of shelf space with no price protection for the model channel," Bouten said.
Compaq began product shipments earlier this week and will launch an advertising and marketing blitz Friday.
For over a year, International Business Machines Corp. (IBM), Hewlett-Packard Co. (HWT) Compaq and others PC makers have struggled to streamline the way they build and sell their computers. During that time, Dell Computer Inc. (DELL), which offers custom built, mail order PCs has thrived, increasing market share and profits.
Compaq will use eight retail distribution channels in Germany, including big consumer goods retailers like Media Market, 1 -1 and Promart, which will cease selling its Lion PC brand and sell the Presario. Compaq also will sell direct over the telephone and Internet.
Previously, Compaq sold comparable performance models to the Presario for around 2,300 marks ($1,358) - a near 50% price premium to German assembled models. "The only weapon they had was price," said Compaq's Bouten, commenting on local manufacturers. "We're disarming them."
"There's big potential for them to do well in Germany demanding on how
aggressive they want to be," said Dataquest Inc. analyst Chris Jones. "Now that Europe is getting down to the price points the U.S. has seen there is a lot of pent up demand."
-Bill McIntosh; 44 171 832 9205; bmcintosh@ap.org
Copyright (c) 1998 Dow Jones & Company, Inc.
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