'In the PC business,at the moment,DELl has it sewn up'-Bennet,Giga Group.
Pfeiffer's exit from Compaq to impact European channel
DP:
Looks like chaos is the order of the day for some especially CPQ.
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By Jana Sanchez
InfoWorld Electric
Companies in Compaq's distribution channel could bear the brunt of radical changes that might be implemented as the company struggles to find its way again, according to industry watchers in Europe.
Industry insiders are assessing what the departure of Eckhard Pfeiffer as president and CEO of Compaq will mean in Europe, and consistently they point to the channel as the arena where the news will have the most impact.
With PC profits at rock bottom throughout the industry, Compaq, which relies heavily on resellers and distributors in Europe, has suffered more than rivals such as Dell Computer, which sells computers directly to the consumers. By cutting out the middleman, analysts suggest, Dell has been able to wring out more profits as PC prices continue to tumble.
Increasingly, Compaq executives have suggested that Compaq would attempt to sell more computers directly to businesses. At the same time, however, analysts wonder if Compaq would be better off focusing on its large corporate clients and services, which it inherited as a result of its acquisition of Digital Equipment.
Compaq's integration of Digital in several European countries, however, was far from smooth, according to some market watchers. Some critics said Compaq botched the integration in France, causing it to lose too many highly skilled staff. In addition, complaints about Compaq sales staff competing with Digital sales staff for corporate accounts, confusing customers and eating into profits, have been widely circulated in London, said Martha Bennett, vice president of research in Europe for the Giga Group, a market research company.
If Compaq does end up focusing on corporate clients and services inherited from Digital, however, the channel would be increasingly important as a way to service and sell Compaq products in large companies in Europe, analysts said. Resellers, nevertheless, are nervous about the relationship and may choose to look elsewhere before they are pushed, Bennett suggested.
"I've already spoken to one Compaq reseller, who says they need to reconsider whose machines they will sell," Bennett said.
It is Compaq's reliance on the channel that has hurt its profits, suggested Stephen Minton, a senior analyst at International Data Corp. (IDC), in London. Competition from Dell and other companies, such as regional manufacturers in Germany that make PCs for big retail outlets, have inhibited Compaq's capability to get profit out of the channel, Minton said.
"Compaq's reliable revenue [from PC sales] is under pressure," Minton said.
Compaq will not be able to get rid of its channel overnight, said Minton, but it can move reasonably quickly toward the Dell model.
"It's going to cause turmoil. They have no choice but to be more blatant about it," Minton said.
Ultimately, however, Compaq will have little choice other than to scale back its channel in favor of direct sales, according to Giga Group's Bennett.
"If they want to stay in the PC market, then they want to go direct," Bennett said.
Other analysts, however, do not believe that Compaq will move to eliminate its channel.
"Compaq has a pre-eminent position in the channel at the moment, and that's not something they will squander easily," said Howard Seabrook, vice president and service director at the Gartner Group, market research company in London.
The resellers themselves are not in a hurry to dump Compaq either, Seabrook said.
"Who could they bring in to replace Compaq?" Seabrook asked, pointing out that Compaq's competitors in Europe, such as Seimens' computer division, are facing tough times too.
Seabrook also cautions that Compaq's problems are so wide ranging that dealing with the channel will not be an isolated decision.
"I don't think this is a single issue problem for Compaq. They have a basket of things that contribute to their ability to hit profits. One of these has got to be their channel strategy," Seabrook said.
The integration of Digital has added to Compaq's bloated structure and has not been successful in much of Europe, analysts also said.
"Compaq has been massively distracted over the past 12 months, because of the integration of Digital," IDC's Minton said.
On the bright side, in this case, Europe's famous conservative approach to business may pay off for Compaq's Europe, Middle East and Africa (EMEA) division.
"The fact that EMEA has been more cautious in implementing some of the Compaq changes" is an advantage, Gartner's Seabrook said. "Europe was more experimental rather than implementing them wholesale."
For instance, Compaq subsidiaries in EMEA, rather than focusing on consumer sales, have done well among corporate customers, Seabrook said.
Going forward, Compaq must tighten up its strategy and figure out what it wants to do and where its market is, analysts said.
"In the PC market, at the moment, Dell has it sewn up. But Dell cannot compete at the high end. Compaq should be working at the high end and not focusing on PCs," Giga's Bennett said.
The high end is exactly where Compaq has focused in Europe, according to recent earnings figures. In Europe, services make up 22 percent of all Compaq revenue, according to Andreas Barth, general manager for Compaq's EMEA unit, during an interview in March. Although Compaq's European PC business brings in 44 percent of total revenue, only about 6 percent or 7 percent of that is from consumer PCs -- a much lower position than in the United States, Barth said.
About 35 percent of Compaq's European revenue is in corporate products, comprising servers, networking technology, workstations, and storage, Barth said. Part of this is a legacy from Digital. At the time of the Digital purchase, 50 percent of Digital's worldwide revenue was from Europe.
"EMEA has always been a bit of a jewel in the crown for Compaq. It can survive in the short term quite well. Pfeiffer had a special feel for EMEA, because that's where his roots are," Gartner's Seabrook said. "We hope that special relationship holds with the new person."
(Jana Sanchez is the London bureau chief for the IDG News Service, an InfoWorld affiliate. Jeanette Borzo, the News Service's Paris bureau chief, contributed to this article.) |
