A Comeback At Compaq? Wait Till Next YearDeidre A. Depke
When it comes to Compaq Computer Corp., Wall Street is downright gloomy. Slammed by personal-computer price wars and a drop-off in demand, the once high-flying company lately has delivered little but bad news. That has driven the price of its stock down 60% this year, to the mid-30s. Says analyst Peter J. Rogers, of Robertson, Stephens & Co.: "Only in the computer industry could a company like Compaq rise to become one of the most successful companies in American industry, then fall just as precipitously."
The funny thing is, Compaq staffers, customers, and dealers say the company is in better shape now than it has been for a year. New distribution strategies, better customer support, aggressive new PC prices, and an expansion into Japan are all seen as the first steps toward a rebound. Even the company's August decision to put its $30 million North American advertising business under review is seen as a positive step. "When you have an experience like we've had, you get very introspective," says Compaq Chief Executive Rod Canion. "There's been a lot of change going on."
UPGRADEABLE. That's not to say Compaq is out of the woods yet. Analysts figure the company's third-quarter earnings will drop below 20~ a share, compared with last year's $1.38. The full-year outlook isn't any better: Compaq's net is expected to come in 63% below its 1990 earnings. "This stock hasn't hit bottom yet," warns Rick Martin at Prudential Securities.
But Compaq is taking the long view. The Houston company is revitalizing its PC product line, starting with four new desktop computers set to debut on Sept. 16. Three will come with Intel Corp.'s high-end 80486 microprocessor, and each will be built around a concept Compaq calls "modular intelligence." That means buyers will be able to upgrade their PCs with new technologies, including microprocessors, memory, and other features (table).
The upgradeable PC isn't a new idea. Clonemakers such as AST Research Inc. and PC heavyweights such as IBM all sell such machines. But Compaq's new PCs allow buyers to do more extensive upgrades, and to do them more easily. With the Compaq systems, an owner can swap any one of five modules for a new one, and the others will automatically accommodate it. With other PCs, replacing one component can require a revamping of other hardware and software.
Computer companies acknowledge that few of their customers actually upgrade their machines: AST says that less than 5% of its PC customers now do so. Nonetheless, corporate buyers say that upgradeable technology is comforting to executives who have been burned in the past by the industry's meteoric pace of technological change. "It gets the purchase approved," say Steve Walker, PC coordinator for Pay N Save Drugstores Inc., a Compaq customer.
Compaq's new PCs, coupled with plans for a color notebook by early 1992, could help reestablish the company's engineering edge over the competition. Intense rivalry from clonemakers, which matthat tore deeply into profits.
MORE CONTACT. Consolidation among the nation's biggest computer dealers didn't help. Eight of the company's top 10 national dealer chains have merged into four this year. Compaq, which has traditionally relied solely on its dealers for sales, was left with piles of inventory. "Two years ago, Compaq's distribution strategy was characterized as a major strength," says Doug Johns, Compaq's vice-president of marketing. "Now it's perceived as a major weakness."
To fix things, Compaq this summer quietly broke with tradition and has been slowly authorizing discount chains and consultants to sell its products. The company has also been stepping up its own sales contact with customers, partly through new support programs, including a toll-free hotline.
Then there is Compaq's very-long-term strategy. That hinges on a well-publicized plan to move into the market for high-powered workstations. To get there, the PC maker has allied with some 84 other companies, including big guns such as Digital Equipment Corp. and Microsoft Corp. Dubbed ACE, for Advanced Computing Environment, the group won't deliver products until late 1992.
Wall Street figures it has a shorter-term solution for Compaq. "Tactically, what's necessary is aggressive cost-cutting," says Robertson's Rogers. Canion steadfastly refuses to follow the advice. "If I announced a big layoff, everybody would cheer, and the stock would go up," he says. "But I don't feel pressured." These days, Canion figures, he's better off keeping his eye on the competition, instead of on the Street.
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