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To: Lizzie Tudor who wrote (118718)	4/19/1999 12:26:00 PM
From: Mohan Marette	Respond to of 176388

CPQ's-Facing the task of Herculian proportion.One day channels,next day direct. "In fairness, a lot of it was our fault," Rosen said of the disappointing first-quarter results, which are to be reported officially Wednesday. Although he called Compaq's strategies "fundamentally sound," Rosen said: "I don't think we executed well. I hope that in subsequent periods we can improve on that performance." A class-action lawsuit was filed on Friday alleging that Compaq, Pfeiffer, and Mason misled investors by failing to disclose information related to weakening demand for its PCs. Analysts generally agree that Compaq has not performed as well as many of its competitors. "Compaq's shortfall is not representative of the health of the industry. We estimate that PC unit shipments are down [more] for Compaq vs....the broad market," said Ashok Kumar of Piper Jaffray. Like all computer manufacturers, Compaq has encountered ever-shrinking profit margins brought on by the introduction of PCs selling for less than $1,000 or increasingly even $500. But its problems were compounded by the dilemma of selling its products through third-party resellers while moving toward sales straight to customers to compete with direct marketers such as Dell and Gateway. "The only thing worse than cannibalizing your own sales is to have a competitor cannibalize yours. Compaq never understood they had to do a flash transformation: one day distributors, next day direct," said Danny Lam, a director of consulting firm Fisher-Holstein. But he acknowledges that "it would have been a project of Herculian proportions to have pulled it off." ...... "Direct sales is now clearly the norm in the United States and, ultimately, the world. Inventory management, lean manufacturing and distribution, and build-to-order are the new mantras necessary for survival, let alone profitability," Lam added. "Compaq, like IBM, missed their turns in the road during this tumulous time, and instead, dissipated their energies on acquisitions." news.com