Compaq suffered some turmoil during 1999, including the demise of chief executive Eckhard Pfeiffer, a three month search for a successor and a drip-drip approach to overhauling its channel policy.
January:/ Compaq UK overhauls its networking division following the acquisition of Cabletron's networking operations, pushing commodity items such as modems and interface cards (NICs)into other divisions. The company plans to concentrate on selling high-end equipment and services, in a departure from a bullish attitude three years previously about the prospects for its commodity networking products in a burgeoning SME market. Modems move into its enhancements and options division, to join other desktop goods such as monitors, while NICs and remote access products are to be sold by Compaq's server division.
February:/ Compaq UK forces resellers to stop configuring its PCs with third-party components through a clause in the vendor's Ts&Cs that threatens to invalidate warranties on the hardware. To qualify as a Compaq authorised service provider, a reseller must 'not configure Compaq products with non-Compaq items without advising its customer that this may invalidate Compaq's warranty, if it leads to malfunctioning or damage of the Compaq products'. Resellers believe the decision will extend to non-Compaq peripherals and force customers into the arms of rival vendors.
Speaking at Compaq's international press briefing in London, Andreas Barth, then vice president of EMEA at Compaq, said the vendor will raise the proportion of direct sales in the forthcoming year to 30 per cent of total revenue, up from 23 per cent in 1998. Of the $31.2 billion sales made by Compaq in that period, about $7.2 billion was generated outside of the channel. This turns out to be Compaq's boldest statement regarding its direct sales strategy to date. Blaming 'the customer-driven market', he says Compaq will use the Net to sell direct to users in Europe, in addition to using its direct enterprise sales force of 2000 people to reach different market sectors.
March:/ In a panic, fuelled by an incoherent sales plan over the Internet and a raging price war, Compaq suspends the supply of its Presario PC range to online-only retailers for 90 days, as analysts express concern over faltering sales and its direct strategy. US distributors Tech Data and Ingram Micro are ordered to halt shipments of Presario machines to online-only retailers while the vendor re-evaluates its online channel, but in the process Internet retailers such as Cyberian Outpost, PCSave.com, Buy.com and even Compaq's own soon-to-be acquired Shopping.com are left in limbo.
Compaq UK launches a scathing verbal attack on arch-rival Dell, calling for the direct PC maker to come clean about its UK channel trading practices. Joe McNally, managing director of Compaq UK, rounds on Dell's advertising campaign that uses the slogan: 'Cut out the middleman. Be direct', pointing out that Dell does not install, maintain, train, deliver or provide support to its customers direct and has been contacting major UK resellers to sell Dell products and provide such services.
April:/ Eckhard Pfeiffer, chief executive since 1991, quits Compaq as pressure from the board - primarily co-founder and chairman Ben Rosen - forces him to resign one week after the vendor issues a Q1 profit warning and amid a class action against 11 directors for alleged insider dealing. Rosen becomes interim chief executive and the hunt for Pfeiffer's replacement begins. Pfeiffer leaves with a golden parachute worth up to $6 million.
May:/ Compaq ends the 90-day suspension imposed on Web-only resellers in the US in March, by authorising up to five online partners in the US. The resellers will be supplied through the vendor's distributors and be expected to stick to minimum pricing guidelines, as well as the same rules as traditional resellers. However, online-only resellers remain a US phenomenon at this stage and Compaq UK is not ready to set its policy yet.
Compaq dumps the majority of its PC and server distributors in the US in a radical bid to keep track of its inventory. Under its Distributor Alliance Programme, the vendor culls its 40-strong distribution channel for build-to-order PCs and servers down to three distributors: Ingram Micro, Tech Data and Merisel. Reseller Inacom is invited to join the alliance. Co-location partner Compucom will also continue to provide channel assembly. Similar moves in the UK and Europe are denied at this stage.
June:/ Compaq turmoil continues apace as it details a radical restructuring amid a second profit warning and further resignations from its board. In a statement issued on 17 June, Ben Rosen, acting chief executive, says the vendor will incur a net loss of up to $260 million in the second quarter ending 30 June. He attributes the shortfall to the continued effects of operational issues that affected Compaq in the first quarter. Industry observers view Rosen's statement as acknowledgement that Compaq's problems - which included a profit warning for the first quarter - are due to internal factors rather than being an industry-wide problem, as originally implied by Pfeiffer prior to his resignation.
Restructuring will see Compaq split into three global business groups in a bid to control operating costs and cut them by $2 billion: enterprise systems and services, PC, and consumer. Compaq reveals that Barth will retire after 12 years, to be replaced by Werner Koepf. The departure of Hans Gutsch, senior vice president for human resources, is also announced.
Meanwhile, Compaq will disband direct relationships with all but its top European distributors and corporate resellers next month, in a move that will mirror the culling of its US channel in May. Olivier Suinat, director of channel management and marketing at Compaq EMEA, says the vendor needed to reduce the number of times stock was handled and the associated inventory costs.
He adds that Compaq was considering co-location with large channel partners, one year after Compaq had previously rejected co-location as a strategy for Europe, claiming the market to be unsuitable for channel assembly.
July:/ Compaq's board appoints an insider as president and chief executive, three months after Pfeiffer's resignation, in the form of Michael Capellas, former chief information officer and acting chief operating officer since the beginning of June. Dismissed by many insiders as the mouthpiece of chairman and co-founder Ben Rosen, he reiterates the company's intention to move its sales to the direct model. He also indicates it will re-brand itself as an Internet company, along the lines of IBM and Hewlett-Packard.
Compaq extends Internet sales plans to SME businesses because of pressure from customers, competing with partners by selling direct and via the channel. Direct sales over the Internet to smaller firms will be restricted to Compaq's low-end Prosignia PC range starting in the third quarter of this year.
September: Compaq confirms plans to dump a large number of European distributors, following similar action in the US earlier in the year. In his first visit to Europe since his appointment, Capellas stresses a need to simplify the distribution model and reduce infrastructure costs, warning that the model where a product is touched many times is obsolete.
October: Compaq renames its channel division as the partner business unit, adding independent software vendors to the umbrella group, which it claimed would enable the vendor to co-ordinate its marketing activities more effectively. All system integrators, ISVs and alliance partners, such as Microsoft and Oracle, would now sit alongside traditional channel players, and some of Compaq's direct partners would now have to go through distribution.
November:Compaq invokes the wrath of the retail and mail order channel with its decision to make the Dixons Stores Group its only UK retail outlet for its Presario PC range in a bid to 'move away from a fragmented channel'. Michael Kraftman, deputy chairman of Tempo, refers the deal to his lawyers, and the John Lewis Partnership complains to the Office of Fair Trading (OFT).
December: Compaq establishes a single pricing model, taking the price advertised on its website as the base for all customers across Europe, forcing them to choose between buying direct over the Web from Compaq or from resellers, and simultaneously passing the buck to partners to decide whether they can make money from selling Compaq products. This is despite a poll in September by Compaq of its large customers, which determined that 65 per cent of them want to buy indirect. The vendor also fails to clarify whether or not it would continue to use all its existing distributors in the new model.
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