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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: abraves who wrote (78424)	11/12/1998 12:35:00 AM
From: Mazman	Respond to of 176387

Compaq Takes Deeper Plunge In Direct Sales Investor's Business Daily -- 11/12/98 Author: Nick Turner It's yet another sign that the personal computer industry is shifting to a direct business model. It's also a signal that small-business customers finally are getting some respect. Compaq Computer Corp. announced Wednesday it would sell a new line of PCs -called Prosignia - directly to small and midsize businesses. Prosignia is a move to compete against two powerful groups: small no-name manufacturers of so-called ''white boxes'' and direct PC sellers such as Dell Computer Corp. Houston- based Compaq, the world's No. 1 PC manufacturer, figures Prosignia will help get it a bigger piece of the pie. But there are dangers. By selling direct, Compaq could anger partners in the distribution channel. Even as the company sells more PCs without help from distributors, Compaq relies on them to offer services and to integrate software and networking equipment. Michael Winkler, general manager of Compaq's PC products group, spoke with IBD about the strategy. IBD: What's the significance of the Prosignia announcement? Winkler: There are two big things we're trying to emphasize. One is the concept of customer choice. It's not a question of direct or indirect. It's a question of dealing with a customer however that customer chooses to be dealt with. Many people - about 65% of the market today - are dealt with by resellers and systems integrators. In the small-business market, they often like someone who's local to hold their hands and take care of them. The second item of importance here is the new brand. Prosignia is a new packaged set of products and solutions for the mall and midsize business) environment. Our objective is to go after the white boxes, which are sold in a high degree into that market, or direct manufacturers. IBD: Compaq is pledging to deliver custom-configured PCs within five days, whereas Dell's average is about seven. How important is fast delivery time? Winkler: The most important thing to the customer is predictability. It's knowing that when you say you're going to get it to them, you're going to get it to them. Then the second consideration is how fast they are going to get it. IBD: How did you get your infrastructure ready for that? Winkler: We have a lot of people on the phones and handling orders over the Net. They help the customers configure the system, and they quote the availability. And then we have a configure- to-order capability in place that is dedicated to just this business that ensures we can build what the customer wants in the time frame they want. IBD: Isn't there a danger of alienating your partners in the distribution channel? Winkler: We have tried in every possible way to avoid that. And we've done that through involving our reseller council advisory boards and the channel executives on virtually a monthly basis as we developed this program. So we think we've accommodated a lot of their concerns and also incorporated a number of opportunities for them. IBD: In determining your prices, are you using Dell as the benchmark? Winkler: Actually, Dell is not necessarily the lowest-cost (PC maker). At times, we are priced lower than Dell. At times, Hewlett-Packard Co. and IBM Corp. are priced lower than Dell. Dell has an image of having very low prices and promoting them very well. But (Dell) does not necessarily offer the lowest prices. It tends to get (money) back in other ways, such as freight charges or higher lease charges. IBD: Why is the small-business segment becoming such a hot area? Winkler: It's the fact that it is such a large portion of the market. It's almost half of the commercial information-technology market. And, more important, it's the most rapidly growing segment. That's due to some of the economic restructuring that's going on in the U.S. and around the world, with the growth of the number of small businesses and the growth of the businesses themselves. IBD: You say the small-business segment is fragmented. But white-box makers say that allows them to have local relationships with customers. How do you compete with someone at the local level? Winkler: Most of the local resellers would rather have a branded box than a white box if the price is approximately the same. There were two issues with that in the past. Because these companies tended to be smaller, they got last pickings (in terms of) product availability. Since they could never be assured of product being available on a regular basis, they had to deal with white boxes. Secondly, the larger manufacturers were higher in price. But we've come down lately. IBD: What about providing that local touch? Winkler: That is what we need the value-added resellers for. To Dell, Micron Electronics Inc. and Gateway Inc. (other direct manufacturers), the channel is the enemy - openly and publicly. We have always been a friend and compatriot to the channel. We use the channel for our service offerings. And Prosignias can be ordered through an agent who can get a commission. So we think we offer the best of both worlds. IBD: Are we moving to an industry where resellers cede the selling of PC hardware and focus on services and support? Winkler: I think there's certainly a trend in that direction. I think a lot of (resellers) will still be in the hardware business over time, because it's not just a matter of offering the PC off-the-shelf. The more complex applications involve a lot of third-party hardware and software. In those cases, the (resellers) can sell the hardware and justify the cost there. But in general, you'll see most of the (resellers) have more of a software and support focus. They get better margins on that.