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

To: rupert1 who wrote (38868)	12/6/1998 9:10:00 AM
From: rupert1	Read Replies (2) \| Respond to of 97611

Industry Axiom Fast Becoming a Myth- Computer Reseller by: hlpinout December 07, 1998, Issue: 820 Section: Opinion/Editorial Industry Axiom Fast Becoming A Myth Craig Zarley It is time to retire one more industry axiom. Many people in this business still cling to the belief that most PC sales and profits come within the first 45 days of a new product's introduction. That once was true when the industry revolved around finished goods inventory, PC model numbers and other trappings of a now-arcane supply chain. And it may continue to be true in a retail environment where consumers still rush to buy the latest and greatest machine. But in commercial markets, forget about it. In fact, operating on the 45-day theory may be counterproductive. When a new Intel processor comes out, vendors too often quickly incorporate the new chip into machines, then attach expensive bells and whistles such as the fastest CD-ROM drive or the largest available hard drive in order to beef up initial profits. Some channel executives and vendors, such as Dell Computer, have figured out that the profits in the commercial market are best made on the back end, not the front end, of a product cycle. They understand that many corporate accounts want both low price and standards. If the channel and its vendor partners can incorporate new processors into machines quickly and sell a basic system instead of one cluttered with expensive components, they can win significantly more commercial bids. What's more, the system then becomes the standard for the length of the contract. As the inevitable processor price cuts occur, profits on the deal actually increase the longer the contract is in force. Some of Dell's competitors criticize this scenario as "forward pricing." I call it smart business. Customers are pleased because they get low prices up front and the knowledge that they will not run into software incompatibility problems because of changing hardware standards. Channel assembly gives the channel the weapon to build machines to order while remaining immune from model numbers and ever-shortening product cycles. But Hewlett-Packard, Compaq and IBM are going to have to step up to the plate and lend their brand name to what essentially is a white-box system. The vendors would be smart to try to include as much of their respective content in these systems as possible, but much more flexibility needs to be granted to the channel to include third-party components when they are either more readily available or less expensive. Of course the vendors' great fear is that these stripped-down branded corporate machines would cannibalize their other PC product lines. If that's the case, then the market has spoken. It's always better to eat into your own product sales than have a competitor do it for you.