Compaq Expected to Retain Hybrid Sales Strategy

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Compaq Computer Corp., Houston, is expected to continue to pursue its hybrid of direct and indirect sales, despite the sudden departure over the weekend of its top two executives, analysts said.

The company, which has been criticized repeatedly for its awkward efforts at direct sales of personal computers to consumers, said it had no plans to change its strategy in the wake of the resignations of Eckhard Pfeiffer, chief executive, and Earl Mason, chief financial officer.

"[Compaq's directors] are saying that strategically, they were on the right track, they just weren't executing," said Wendy Abramowitz, an analyst with Argus Research, New York.

The company's board reportedly called for the resignations after a disappointing first quarter. Earlier this month Compaq said it would post profits that would be less than half of what analysts expected. The company is expected to report its first-quarter earnings this week.

Two years ago Compaq embarked on a mission to create a build-to-order, direct-sales business model similar to that of its faster-growing rival, Dell Computer Corp., Round Rock, TX. Then last fall, Compaq also began selling personal computers directly to consumers through its web site. Many analysts have said that the company's direct-sales efforts hurt its relationships with resellers and that its problems were compounded by the acquisitions of Tandem Computing and Digital Equipment Corp. in 1997 and 1998, respectively.

Robert Anastasi, an analyst with Robinson-Humphrey, Atlanta, pointed out that it took several years for Dell to become proficient at direct sales, and it underwent several management changes in the process.

"You don't just flip an switch and say, 'OK, we're going to do direct as well as Dell does direct and then we're going to do this indirect stuff too,' " he said. "And then say, 'Oh, by the way, we've just acquired Digital Equipment and Tandem.' "

Anastasi speculated that Compaq might actually shy away from some of its direct-sales efforts while it attempts to solidify the acquisitions. The company could, for example, outsource some manufacturing to its distributors.

He agreed with Compaq's decision to retain a hybrid sales model mixing direct and indirect sales, however.

"I don't think they want to be all direct or all indirect," said Anastasi. "But Dell has convinced a large number of buyers, rightly or wrongly, that they should be buying direct, and you have to accommodate those buyers, so I don't see that hybrid approach changing."

During the search for a replacement for Pfeiffer, who also had the title of president, his responsibilities will be handled by members of Compaq's board of directors. The chief financial officer post will be filled on an interim basis by Ben Wells, treasurer.
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