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Compaq: Ready To Rumble


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COMPAQ: READY TO RUMBLE

Is Compaq Computer Corp. out on a limb? Its share of the personal computer market has jumped to 14%, from 10.4%, in the space of a year. Indeed, it passed struggling IBM and Apple Computer Inc. to cop the industry lead in unit shipments so far this year. In the process, though, Compaq has built up a staggering $2.2 billion in inventory. That's four months' worth of sales--double the level of just two quarters ago.

Historically, Compaq has been far more cautious in managing its inventories. As a result, it also has a tradition of being hit with chronic product backlogs. Now, the personal computer company says it wants to erase those shortages--and gear up for what it hopes will be a massive Christmas sales onslaught.

SHARE DRIVE. In the second half of the year, Compaq is expected to ship 50% more computers than in the first six months. "There's no reason we can't put a couple more points of market share on the board by the end of the year," says Chief Financial Officer Daryl J. White.

Compaq denies it, but there are signs that its strategy could touch off a fierce fourth-quarter price war. With profit margins around 26%--well above the industry norm--the Houston company is uniquely positioned to drive drown prices without losing its profit edge. Moreover, after investing $350 million this year in new plant capacity, Compaq has an interest in keeping products moving fast.

Certainly, the company is playing from strength. After doubling output in a year, its second-quarter profits jumped 105%, to $210 million. It has begun building restyled versions of its Prolinea desktop and Contura laptop machines, plus new models of its Presario home PC--all of which are expected to be announced in coming weeks. Compaq also plans to double spending on advertising in the second half over last year, to more than $100 million. By the end of 1995, says Dataquest Inc. analyst Kimball Brown, Compaq could "pull away from the pack."

That's why Compaq CEO Eckhard Pfeiffer downplays the risk of full warehouses. "It's one thing to be concerned about inventory," he says. "But if you're constantly behind, you need to get on top of it sometime." Analysts agree there's probably no better time for Compaq to make that move. Sales are booming across most of its product lines. Even the beleaguered Aero subnotebook has picked up since the company dropped the price to $999, from about $1,300, in June.

BIG BLUES. Compaq's inventories, though, now dwarf those of Apple and Dell Computer Corp. And in an industry where many models survive less than a year, bloated stockpiles have punished powerful rivals. IBM, for one, is still taking back some $600 million of unsold low-end PS-1 and ValuePoint models, after an attempt to flood its channels last autumn backfired, says International Data Corp. analyst Richard Zwetchkenbaum.

Compaq says it plans to reduce prices for Christmas only on selected models. "We are not planning 20% or 30% cuts across entire product lines," pledges CFO White. But with prices for microprocessors falling by double digits, Compaq may be tested to clear its warehouses of PCs built around yesterday's chips. That could mean a punishing Christmas for other PC makers.Peter Burrows in Dallas


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