Can Compaq bounce back and reclaim its number one spot in the US PC market from Dell?
The company might not care, according to one top exec.
"We aren't after share for the sake of share," said Mike Winkler, the senior vice president of PC Products at Compaq, in a recent interview with ZDNN. The message? Profits matter, and Compaq is more than a just a PC maker.
Not that Winkler doesn't think Compaq should keep growing sales. "You either grow or you die," he said. But he noted that Compaq "continues to outgrow the market quarter to quarter", and insisted that despite Michael Dell's rhetoric, Dell's phenomenal sales growth isn't coming by stealing Compaq customers. "We can't find the accounts" they're winning, Winkler said.
Analysts think Winkler is adjusting corporate strategy on the fly. "He's putting the best face he can on the situation, which is really difficult," said Roger Kay, an analyst at IDC. Kay thinks Compaq's number one spot in the US is doomed, and growth trends worldwide also don't look good. The silver lining for Compaq, though, is that as Dell Computer gets larger, its percentage growth rate will slow and Compaq's superior international distribution network could help it stay number one worldwide. "If Compaq gets its act together... then they could actually stay ahead of Dell for quite a few more quarters, maybe even for years," Kay said.
To get its act together, analysts say Compaq must address its distribution issues, such as inventory and price protection for its dealers. It also must articulate a clear strategy for sales on the Internet. "They've gotta pull together some kind of strategy," said Kimball Brown, an analyst at Dataquest. That involves logistics, but Brown thinks Compaq will be hard-pressed to match Dell's typical stock of five to six days' worth of inventory. So it must look to lowering its costs, by leveraging the Web. "Compaq's got to have an e-commerce strategy," he says. Brown says Compaq probably won't be as efficient as Dell, but it might not have to be. He also thinks that Compaq must stop guaranteeing prices on the PCs it sells to resellers.
"Dell sells through resellers, but either the reseller or end user takes title to it before they see it. It's off Dell's books." Brown thinks Compaq must do the same with its resellers.
Winkler said Compaq's inventory is down to four weeks, and that the company aims to get it to two weeks. He also said that 25 percent of Compaq's commercial desktops are already custom-configured for customers.
A Compaq spokesman said Compaq's recent Distributor Alliance program means it pays lower price protection guarantees and has improved efficiencies. Winkler also said that some 15 percent of Compaq's business is direct. While that share may grow, Compaq thinks that 50 to 60 percent of its business will still come from resellers in the future, and that Dell's distribution model will morph to resemble Compaq's. "In three to four years, we'll all look the same," Winkler said.
Analysts agree. After all, Dell already sells through resellers, and Gateway has approximately 150 retail stores in the US. Meanwhile, IBM and Hewlett-Packard are looking at ways to shift their distribution as well.
"I think that's going to happen sooner than two or three years," said Tim Bajarin, president of research firm Creative Strategies. Bajarin thinks that within 18 months, PC buyers will hear PC makers say: "We'll let you create any product you want and we'll sell it to you any way you want it."
Bajarin thinks Compaq will do what it takes to stay number one. "Compaq is not going to give up its number one position without a huge fight," he predicted.
Dan Farber contributed to this story.