Compaq-A world-class company still very much in turmoil.(Forbes)
Drew:
Here is an interesting article on CPQ and consolidation in the PC industry I found in Forbes. I don't know how knowledgeable the girl who wrote the article is particularly after reading the first paragraph where it says:
...'Dallas, Tex.-based Compaq Computer wants that top spot, but the race is far from over...' <vbg>
A honest mistake I am sure, but overall the article is worth reading as it is very informative.
Some noteworthy points regarding CPQ.<excerpts>
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..But by Compaq's own admission, taking Digital Equipment's performance out of that equation actually leaves the operating figure down 3.7%. This is not a good sign considering the number of units shipped was up by 24.9% during that same time period.
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A close look at Compaq's operations reveals a world-class company still very much in turmoil
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The company's gross margin is also falling, down to 18.5% of sales from 27.4%, as a result of falling market prices and an increase in Compaq's promotonal sales pricing. While CFO Mason attributes the margin squeeze and a bump in the cost of sales to "the integration of DEC," he's contradicted by the financial notes in Compaq's second-quarter report. In note 14, the company states that both these declines are due to "significant pricing and promotion actions taken." In other words, drastic price cuts necessitated by an industry growing increasingly competitive and commoditized.
Compaq's struggle in the consumer PC market, especially with the threat posed by Dell's direct sales model, is well documented. While Dell's direct sales have been growing like gangbusters for years, Compaq didn't have any meaningful direct-to-consumer online or phone order sales efforts until last summer. Now that Compaq is gunning to become an information technology provider along the lines of IBM, with a full spectrum of products and services from $650 hand-held computers to $2 million fail-safe servers, its business has become more complicated. According to Mason, 15% of revenues come from consumer PCs, with 35% coming from high-volume PC sales to businesses and 50% from the enterprise market, which consists of workstations, servers and information technology services. However with this increase in product lines and their respective revenue streams comes a proportionate increase in the number of fires that need to be put out. The addition of DEC's salespeople, for instance, presents the challenge of getting separate forces on the same compensation plan--potentially a big hindrance to productivity until it is resolved.
Part of the company's problem, says DataQuest analyst Kimball Brown, is that "Compaq is so intent on capturing market share that it's giving away price to boost the number of units it sells." According to DataQuest, Compaq's third-quarter worldwide market share was 14.2%, well ahead of Dell's 5.9%. The reason Compaq is still coming up short? It's focusing on the low-end market, which has lower margins, while Dell is appealing to more of a high-end user and therefore generating better margins. While Compaq campaigns to position itself as the premier maker of sub-$1,000 Presario PCs, Brown wonders what that achievement is really worth, aside from some bragging rights......
.....Compaq's margins are shrinking, despite the fact the company is making sizable inroads toward increased efficiency and the expansion of direct sales...
Mohan:
Here is how CPQ's BTO works! Oh yeah that is beating DELL in their own game,right.
"..According to ING Baring, Furman Selz analyst Robert Cihra, Compaq has also gained some ground by increasing the number of PCs it builds to order--albeit these are resellers' orders and not the consumers'--but he says they're generally closer to the mark than factory forecasts...
Mohan:
Price advantage DELL Vs CPQ, a bit closer but no cigar.
...'With the help of this kind of progress, "The gap in price difference between Dell and Compaq was 25% a couple of years ago," says Cihra, "but now it's down to 10%. Still, as long as Compaq continues to use resellers, complete parity on price will be impossible." ...
Mohan:
Serving up the Servers...look who is coming to play.
Talking about CPQ's server biz..Tandem+DEC
.....The trouble is, in the server market, which accounts for a big chunk of enterprise sales, revenues for both these companies have been flat...
'..Now Dell with its direct sales is edging into the server market, more than doubling its sales from $80 million in the first half of 1996 to $280 million in the same period of 1997 and $590 million for 1998's first half.
...'Yet other concerns linger. Last June, Compaq announced that it would lay off some 17,000 employees between June 1998 and 1999. Yet, to date, only 6,000 have received walking papers, leaving another 11,000 to walk the hallways waiting for the ax to fall, and creating the challenge of having fewer salespeople to generate even more revenue....</>
forbes.com |
