Compaq Buys a Chunk of Inacom - But Will It Help?

  • Written By: R. Krause
  • Published: January 21 2000

Event Summary

1/4/2000 [Sm@rt Reseller] - As rumored since last fall, Compaq Computer Corp. has announced its acquisition of Inacom Corp.'s distribution business for approximately $370 million in cash. The deal will let Compaq re-engineer its supply chain, while cutting off indirect rivals Hewlett-Packard and IBM from a major distributor.

Compaq said it expected the deal would allow it to enhance its direct-sales capability by giving it end-to-end order management and complex configuration capabilities. Compaq officials said that Compaq currently accounts for 40 percent of Inacom's product business. Inacom, meanwhile, positioned the deal as freeing its focus on IT services, a direction in which the company has been moving for months.

Under terms of the deal, Inacom and Compaq entered into a three-year services, supply and sales agreement, giving Inacom access to the product customization and logistics capabilities it is selling to Compaq, an arrangement Inacom is expecting to "provide substantial incremental services revenues."

Under terms of the deal, Compaq will use the acquired Inacom assets to create a separately managed wholly owned subsidiary, reporting to Mike Winkler, senior VP and group general manager of Compaq's Commercial Personal Computing Group.

Market Impact

Compaq is still trying to find its way to the Holy Grail of being "just like Dell", i.e. streamlining the product delivery process to reduce costs, improve profits and improve predictability. However, this move is aimed more at the custom-configuration business than at the off-the-shelf market. Inacom should be viewed more as a VAR (Value-Added Reseller) coming under Compaq's aegis than as a means to increase manufacturing capacity.

On the positive side, this may finally be an indication that Compaq has a strategy for revamping its operations. After more than six months of fits, starts and on-again-off-again initiatives, Compaq needs to get something going, and this may be the first step.

This move will not appreciably impact overall market growth, it will only shift customers back to Compaq. This is not a "slam dunk" for Compaq, but it is a step.

HP and IBM must also now find someone to absorb the volume that would normally be passed through Inacom. They will have some difficulty, but it is certainly not an insurmountable problem.

User Recommendations

Even though we are optimistic that Compaq is finally getting back on track, users should still exercise some caution. Buying Inacom's unit does not mean there will be successful integration of that unit into the Compaq structure (witness the problems integrating Digital Equipment Corp. after that acquisition).

We expect it will take, optimistically, a minimum of three to six months for the unit to be functioning at optimum performance. Users who are committed to Compaq should make sure they gain sufficient assurances that integration will not affect delivery or quality of equipment.

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