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

To: rupert1 who wrote (35924)	11/6/1998 7:50:00 AM
From: Elwood P. Dowd	Respond to of 97611

Compaq To Unveil Small Business Plan By Craig Zarley & Herman Mehling Houston 3:15 PM EST Thurs., Nov. 05, 1998 .............. Compaq Computer Corp. next week will introduce a line of PCs for small and midsize businesses along with a new distribution model that could dramatically alter the way products are delivered to end-user customers. Compaq plans to sell the new systems both directly and through channel partners, said channel executives briefed by Compaq. But there is not enough margin in the new products for them to flow through the traditional two-tier distribution model, the channel executives said. That means distributors such as Tech Data Corp., Ingram Micro Inc., Pinacor Inc. and Merisel Inc. likely will have a diminished role in selling and marketing the new systems, the channel executives said. Bob Fernander, Compaq's vice president of small- and midsize-business PC products, declined to comment. The new products and distribution strategy will be rolled out in New York on Wednesday at an event that Compaq President and Chief Executive Eckhard Pfeiffer is expected to attend, the channel executives said. The new PCs will carry an aggressive minimum advertised price and be targeted specifically at the Dell Computer Corp.'s Dimension line, said channel executives briefed by Compaq. The new systems will be sold directly to small and midsize businesses by Compaq sales reps (CRN, Oct. 19). The channel also will be able to carry the line and sell it to end users but will get no price protection or returns, channel executives said. Compaq will pay agent fees to VARs whose customers choose to buy the new PCs directly from Compaq, the executives said. "I think the program will be an acceptable one for the reseller channel, and resellers will get fairly compensated for referring customers to Compaq," said one VAR briefed by Compaq. Another corporate integrator familiar with the plan said prices contain enough margin opportunity for VARs to take title to the inventory and sell it to their customers. "We know what our margins will be, and it's just a matter of deciding whether it makes sense for us or Compaq to carry the paper on the product," he said. But distribution executives said Compaq has not built enough margin into the products' price for them to sell it to their VAR customers. "There is not enough room for two-tier distributors to operate in this business model," said one distribution executive briefed by Compaq. "The only scenario that we see where we can play is if a VAR does not want to give his customers' names to Compaq [in order to get the agent fee] and instead chooses to purchase it through us," said the executive. "We don't expect a lot of volume [from the new systems], but we will figure out how to support our VARs if they want to buy through us." VARs briefed by Compaq said they felt comfortable with the mechanics that will allow them to participate in the new direct-sales initiative, but they still want the new systems to be carried by distributors. One VAR said he hopes Compaq will make certain models available through two-tier distribution. "It makes sense for Compaq to do this as it already has assembly agreements with Tech Data, Ingram, Pinacor and other distributors," said the VAR. "I would welcome being able to buy select models from distributors." Compaq likely will outsource some assembly of the new systems to contract manufacturers, including the channel, executives briefed by the vendor said."It makes sense to contract some of this assembly to the channel because we are closer to the customer," said one channel executive. But a distribution executive was skeptical the vendor can handle the distribution logistics. "We can still do it a lower cost. We've always felt that to the extent that a vendor can replicate our infrastructure at a lower cost, by all means they should do so," he said. And some distribution executives were still wary of the new sales and distribution model. "We can participate as a backroom partner," said one distribution executive. "But the general distribution flow of product has certainly been altered and will have some impact on our business." Pedro Pereira & Joe Wilcox contributed to this story.