March 21, 1997 2:45 PM ET
Compaq direct-shun to change
By Lisa DiCarlo and Marc Ambasna-Jones

  Compaq Computer Corp., tired of having its lunch eaten by direct PC companies, is tiptoeing back into the direct sales channel.

The Houston-based PC maker this week began notifying resellers in the United Kingdom that it would begin selling its business-oriented products directly to customers in that area, sources familiar with the plans said.

A leading Compaq dealer has confirmed Compaq will sell direct, but only to small to medium enterprises of less than 10 people. D-day is expected to be April 8.

"Compaq is looking to put itself on a level playing field with Dell [Computer Corp.] and compete for sales in an area it couldn't previously reach," said Harry Thuillier, managing director of corporate Compaq dealer Fraser Associates. Thuillier added Compaq is "definitely not" going to sell direct to large corporations.

Compaq's decision to target small businesses could tread on the toes of its retailers. Compaq's major retail partners declined to comment until after Compaq formally releases details.

Compaq is expected to announce next month an extended channel push, by which the company hopes to move closer to corporate customers, sources said.

It is not clear whether the direct strategy planned for the United Kingdom will be expanded to the United States, but Compaq in recent months has seen its growth impeded by direct PC companies such as Dell.

Compaq still holds the number one spot both in worldwide desktop PC sales overall and desktop sales to business, but Dell is closing in fast.

In 1996, Dell, of Austin, Texas, saw its domestic corporate PC sales explode 75 percent to hit 1.1 million units. Compaq grew 24 percent with 1.6 million units for the year.

Overseas, Compaq has already established a phone center in Ireland to take orders, the sources said. The direct sales force will work in conjunction with Compaq's European resellers and VARs , the sources said.

Resellers in that area are reportedly livid over Compaq's decision, as any moves to sell directly cut into its profit margins.

"Compaq is a dirty name right now," said a source familiar with the situation.

So serious is Compaq about maintaining its number one status worldwide, several sources said, that Compaq late last year and early this year was in negotiations to purchase Gateway 2000 Inc.

Although the talks have reportedly cooled, sources said an acquisition or merger may still be in the offing.

Compaq currently has a direct sales channel, through which customers can buy a limited range of systems in small volume. The business accounts for less than 5 percent of its PC unit shipments, officials said.

Compaq officials were not available for comment.

Sources inside Prudential-Bache Securities cited Compaq's new push as the reason behind a March 18 downgrade of Dell and Gateway stock from "buy" to "hold." How much competition Compaq poses is uncertain, said analysts familiar with Compaq's strategy, so the New York securities firm has decided to step back and re-evaluate the market.

Additional reporting by Rob Lemos and ZD Europe UK

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