Compaq Will Make Strategic PC Rollout : Technology: The firm will try to regain the sales momentum it lost by returning to low-cost products.
Eight months after founder Rod Canion was ousted in a startling boardroom coup, Compaq Computer Corp. today will re-introduce itself to the world as a vendor of low-cost personal computers.
In its most important product announcement in years, the Houston company will roll out a raft of desktop and notebook PC products, including an entirely new line of machines, dubbed Prolinea, that are designed to be price-competitive with PCs from Dell, AST Research and other vendors that have clobbered Compaq in the marketplace the last two years.
But Chief Executive Eckhard Pfeiffer’s strategy doesn’t look inventive to many in the personal computer business. While analysts agree that Compaq simply couldn’t continue charging as much as 30% to 40% more than competitors for similar products, many question the wisdom of focusing on a glutted market of PC clones rather than pursuing innovative new solutions for the corporate PC arena.
Compaq contends that it can bring superior engineering and reliability to the low-cost PC business, a contention it has trumpeted in a massive print advertising campaign. But in a biting editorial in the trade weekly Infoworld, respected industry watcher Stewart Alsop dismisses the arguments as “self-serving hogwash intended to cover up what we all know is true: The company no longer has a consistent idea of how to beat its competitors.”
In fairness, few companies know how to beat their competitors in the PC business these days. Recession and market saturation brought the first-ever decline in PC sales last year, and withering price wars have become a permanent fixture of an industry where dozens of competitors sell virtually indistinguishable products based on the venerable “IBM-compatible” standard.
A few firms, notably Dell, Compuadd and Gateway, have grown rapidly by selling low-cost machines via mail order, and a few others, including AST Research and ALR, have done well through low-cost manufacturing and clever management of retail channels. Apple, the only company that offers a truly different PC, has boosted sales dramatically by cutting prices.
But even the successful companies are facing shrinking margins, and a number of manufacturers--including Philips, Samsung and Goldstar--have left the market in recent months rather than absorb further losses.
For Compaq, the evolution of the PC market into a price-driven commodity business has been a disaster. Founded in 1983, the company became the fastest-growing start-up in U.S. business history by selling pricey but innovative IBM-compatible products--notably the first portable PC and the first PC to use the 386 computer-on-a-chip. Cautious corporate PC buyers who avoided other clones felt safe with Compaq, and the company reached $3.6 billion in sales by 1991.
When customers began to realize that all clones were created more or less equal, however, both Compaq and IBM were stuck with high costs, high prices and little to set them apart from the pack. At both companies, revenue began falling and red ink flowed. Compaq’s chairman, venture capitalist Ben Rosen, responded by firing the diplomatic Canion in favor of the hard-driving Pfeiffer. Now, the company’s goal is to “out-clone the clones,” in the words of Sandy Gant, vice president of the market research firm Infocorp.
Taking a page from AST’s book, Compaq today will introduce a segmented product line, with different brands aimed at different market niches. The Prolinea family is expected to include machines that use both 386 and 486 microprocessors, and the cheapest products will start at under $1,000.
A line of low-priced notebook PCs, called the Contura, will also be introduced, according to the trade weekly PC Week and other sources, along with a new set of upgradeable, mid-range desktop systems. Company executives won’t comment in advance of the announcement, but sources say the cheapest systems will be only 5% to 10% higher than comparable machines from Dell and others.
Compaq is also expected to show off some innovative features--including better graphics performance, efficient power management and integrated sound capability--and generally tout its reputation for quality. “They still have good brand recognition, and these little tweaks will allow them to make the statement that they’re being innovative,” says Tim Bajarin, an analyst with Creative Strategies, a Silicon Valley market research firm.
But Bajarin and other analysts note that the strategy carries many hazards. The company must see to it that the Prolinea line doesn’t steal sales from higher-priced Compaq PCs. And it remains unclear whether Compaq’s cost structure is low enough to compete on price, even after the firm cut 1,700 jobs last year.
“We’re going to find out who is really the low-cost manufacturer,” says H. Michael Morand, vice president of marketing at AST. “I’ll match up with them any day of the week.”
IBM, which faces the same kind of cost problems as Compaq, has chosen for the moment not to slug it out in the low end. Instead, IBM executives tout an elaborate vision of the office desktop of the future where the PC features audio and video capabilities, handwriting and voice recognition, and seamless communications with everything from mainframe computers to pocket-sized electronic organizers.
A Compaq spokesman rejects the suggestion that the company has abandoned the high-end corporate PC business. Although it withdrew from the ACE consortium, which aimed to set standards for a new generation of high-powered PCs, Compaq introduced a series of enhancements last week for its family of “servers,” big machines that manage networks of PCs.
Still, the company appears to have decided for the moment that it has no choice but to join the pack. The question now is whether it can still lead it.
Hoping to Regain Momentum
Once the fastest growing company in the personal computer business, Compaq has struggled recently as a host of competitors with lower-priced offerings have cut into its sales.
