March 2000 - ZDNet] Compaq Computer Corp. is betting that slimming down
its commercial desktop PC line will increase profitability.
part of CEO Michael Capellas' strategy for getting Compaq (NYSE: CPQ)
back on track, the company will streamline its commercial desktop PC line.
said Compaq will attempt to make this part of its business profitable
again by slimming down the product line. The aim is to relaunch DeskPro
with a smaller number of models and supporting a smaller number of chip
sets and processors, sources said.
analysts said, has the widest commercial PC product line available today.
The DeskPro line includes nearly 70 models spread across its DeskPro EN
and EP lines, according to the Compaq Web site. By streamlining, some
analysts believe Compaq could cut costs and better compete with business-market
rivals such as Dell Computer Corp. (NASDAQ:DELL), Hewlett-Packard Co.
(NYSE:HWP) and IBM Corp. (NYSE:IBM).
the prodding of CEO Steve Jobs, Apple Computer Inc. (NASDAQ:AAPL) returned
to profitability in part by slashing its product line from dozens of models
and configurations to just a few.
keystone in the move to simplify could be the forthcoming 815 chip set
from Intel. The chip set is based on the same architecture as the Intel
810, 810E and 820 but is more flexible, supporting a wider range of configurations.
PC makers can base a variety of low- to-high-priced systems on it. Standardizing
on a single chip set would please corporations, whose information technology
staff generally like to have their PCs based on the same hardware for
Compaq, carrying a smaller number of models should reduce manufacturing
costs, a necessary move as average selling prices of PCs continue to fall.
major part of Compaq's DeskPro vision includes selling a greater percentage
of PCs directly to customers, sources said. One source said Compaq hopes
to change its product sales mix, which is now largely indirect sales through
retailers and resellers, to a mix that is largely direct sales.
another piece of Compaq's commercial PC business is its recent introduction
of the "legacy-free" iPaq PC line, which stresses ease of use and simplified
support. The iPaq brand includes desktop PCs, notebook PCs, and handheld
commercial PC sales have fallen. In its fourth quarter, commercial PC
sales totaled $3.1 billion, down 19 percent from the previous year. The
unit also operated at a loss. Has Dell finally passed Compaq to become
the #1 U.S. desktop vendor last year?
Compaq, once again, is going to emphasize its direct sales model. More
direct sales models require more customer self-education. Simplicity is
a virtue. Simple rules like "All DeskPros are powerful, nonmobile systems"
make it easier for business consumers and resellers alike. 500 page product
catalogs make things confusing. Sometimes you can have too much of a good
new iPaq is an example of the "less is more" philosophy. It promises to
be "legacy free", focusing on USB (Universal Serial Bus) only and eliminating
ISA/PCI slot in a compact, sealed case Windows 2000 PC. It comes with
the following options:
- Pentium or Celeron processor (500 MHz)
- Flat screen, standard or no monitor
- 64, 128 or 256MB RAM
- Extra CD-ROM, DVD, LS120 drive or 6GB HDD
- Optional modem
- Optional speakers
- Optional Security Lock
- 3 or 4 year Warranty option
doesn't get much simpler than that.
from cost cutting, these moves are critical to deploying a direct sales
model. As the technical gap between different desktops narrows, vendors
must distinguish their service throughout their products' lifecycle. That
includes simplified ordering and delivery. Compaq's January acquisition
of InaCom's manufacturing, customization, and call center operations will
must execute its direct sales model. Otherwise, eliminating options and
making your customers wait longer for fulfillment is a lethal combination.
In light of this, Compaq's promise to avoid direct sales to small and
midsize businesses remains puzzling. This makes no sense - it's the smaller
businesses whose desktop needs are more of a commodity, and thus more
amenable to direct channels.
we forecast a 90% likelihood that Compaq completes its product streamlining,
and a 72% likelihood that they improve their direct sales and fulfillment.
But we only project a 36% likelihood that Compaq moves to a predominantly
direct sales model during the next 12 months.
Compaq will remain a more-than-viable desktop supplier for the foreseeable
future. However, other vendors should at least be evaluated, especially
if your organization is planning other major systems deployments soon
(e.g., Windows 2000).
Few users are all that interested in chipset consolidation, unless it
leads to common hard disk images that can be used to rebuild systems quickly.
Current Compaq customers can expect deep discounts in soon-to-be discontinued
DeskPro models that are more than adequate for most general business needs.