Compaq Profit Up; Some PC Prices Cut
The price wars that have dramatically cut the cost of buying a personal computer are sharply heating up in the business world.
After watching its PC prices undercut by smaller rivals, industry leader Compaq Computer Corp. is responding with equally deep reductions on the desktops it sells to corporations.
Compaq announced Thursday that it cut its business PC prices by up to 22%. Compaq disclosed the new price cuts as it unveiled 13 new desktops for businesses.
The Houston-based computer maker’s second-quarter earnings surged 58%, beating analysts’ estimates. Compaq’s profit from operations rose to $422 million, or $1.48 a share, from $267 million, or 97 cents, in the year-earlier period. Compaq shares fell 88 cents to close at $120.13 on the New York Stock Exchange in what analysts said was a reaction to concern that price cuts may hurt profit margins down the road.
On Thursday, spokesman Bill Hughes said IBM, a main Compaq competitor, “will be competitive” in cutting prices. And Hewlett-Packard Co. plans to announce Monday that it is slicing commercial desktop prices by up to 24%, spokesman Larry Sennett said.
The main target of the new strategy is Dell Computer Corp., a fast-growing maker of low-priced business computers that has chipped away at the others’ share in recent years.
Compaq’s move is part of a broad strategy to cheapen its cost of making computers and then pass on the savings to buyers.
Dell, based in Round Rock, Texas, charges about 10% to 15% less for its PCs than Compaq does. It is able to do that by selling the machines directly to businesses instead of through resellers and distributors who mark up the prices paid by companies.
Rather than cutting out the middleman, Compaq plans to work closely with its distributors to pare the cost of making and selling the machines.
Compaq hopes that building computers as customers order them, instead of the current system of making products in advance and forecasting demand, will dramatically reduce inventories in warehouses. Smaller inventories also will mean that Compaq can bring new products to market faster because it doesn’t have to spend months selling out the old products first.
Compaq sells about twice as many PCs as Dell does, but its growth has lagged.
