Compaq cut prices on its corporate personal computers by about 20 percent Thursday in a move aimed at fending off rival Dell. At the same time, the Houston-based computermaker reported quarterly earnings of US$422 million, up 58 percent from a year earlier.
Compaq officials told reporters that the company will shift from mass-producing hardware to building tailor-made machines for customers and resellers. The move is intended to cut costs by reducing inventory. More importantly, it places Compaq on a competitive footing with Dell and Gateway 2000, which have sold machines for as much as 15 percent less by avoiding retail overhead.
Compaq's entry-level Deskpro 2000 will now cost about $1,000 - a 16 percent discount. Other models in the Deskpro 2000 and 4000 lines range from $1,200 to about $2,000. The machines are also being redesigned to be more modular, which is intended to help slash assembly costs.
Compaq CEO Eckhard Pfeiffer said the company should have an equally strong second half this year, and that the change to build-to-order production "will accelerate market-share gains and improve profitability." He called the new approach the "Optimized Distribution Model," and the company is banking that ODM will spell lower prices without cutting into Compaq's profit margin.
"Why change? In a word it is customers," Pfeiffer said. "We want to offer customers a total buying and ownership experience. And looking at the total cost of ownership, they want their orders fulfilled with 100 percent predictability."
This insight hasn't been lost on other PC-makers. On Wednesday, Hewlett-Packard announced price cuts of as much as 24 percent on its machines. A similar move by IBM is expected shortly.
