Evolving Enterprise - Fall 1998: Last Word

VOLUME 1, NUMBER 3 | FALL 1998

Computer Vendors see Pie in the Sky

By Kathleen Maher,
Jon Peddie Associates

We've been watching the computer vendors jockey for position as they unveil new business plans. If there are two watchwords for this season it's diversify and direct. At least that's true for the giants Compaq and Dell and we see adjustments and tweaks from the competition as well. For their part, Dell seems capable of selling giant multi-processing servers and RAID storage off the Internet. That may be a slight exaggeration, but this is a company that has fully understood the potential of the Internet from the top down. The company has created customized web pages for their big accounts that provides access to drivers, update information and service. Also, the company has a direct sales force on site in major accounts. It's a plan with elasticity built in. The only problem we see on the horizon is a rubber band stretched too thin to offer the necessary support and specialized services. The company's challenge will come with its bid to expand its workstation products into areas traditionally held by Unix machines. Dell could well find itself infrastructure-challenged.

It's a challenge faced even more dramatically by Compaq which somehow must manage to swallow in huge gulps its acquisitions of Tandem and Digital and at the same time meet the challenge of Dell's successful direct approach. This quarter Compaq is finished tightening their inventory turns and they've got it down to 10.1 days, this compares well to Dell's inventory turn of 7-8 days, but the question is, what's happening in the channel? Compaq has added a substantial direct approach to its sales model and it's attempting to appease its reseller channel by creating an "agent" approach, which is designed to funnel sales to resellers in specialized markets. However, even the company's name for their new procedures must seem hostile in the channel. They're calling it "the rules of engagement." In recent analyst meetings it seemed that Compaq was unsure of their model in their PC product line (which, might we point out, was their only product line one short year ago) so enamored was the company of the potential of the IT market and information services. And here's why: Compaq has a serious leg up in several key markets thanks to its acquisitions. Last year, the company had a 15 percent piece of the $170 billion PC market. This year they're looking at around 5 percent of a $835 billion information technology market. The danger we see for Compaq is over confidence when it comes to their PCs and confusion up in the high end.

What about the competition? HP has decided to take square aim at Silicon Graphics' (SGI) new plans. At the same time that SGI announced strategic alliances with Netscape and others to create optimized server environments for Internet service providers (ISPs), HP has done pretty much the same. On the workstation end, both companies are targeting the visualization and prototyping markets. HP has an edge in the CAD arena but when SGI comes out with NT products, they're sure to share similar problems and well as strategies. How will these companies fare in a world where UNIX and NT collide? There are profit margins to think about. HP was hoping to solve the problem by consolidating their product line on Intel-based machines, which would enable a scalable product line and a consistent story for customers. At this day and time, it looks like HP is now just biding their time as they wait for Intel's Merced to enable that plan. Without hearing how SGI plans to sell their new NT products it looks like the company still has a disconnect to deal with, but we'll be finding out more in the very near future.

The market changes we will experience in the next 90 days will be astounding and it won't quiet down until the second half of 2000. Betting on the past as a predictor to the future is at this time more dangerous than it has ever been. Not only is "every thing you know wrong," but everything you think you will know is wrong. Go carefully into that dark night...

Kathleen Maher is Managing Editor of Jon Peddie Associates' The Peddie Report, a weekly newsletter recognized as the PC industry's technical marketing advisory. Jon Peddie Associates can be reached at 415-435-1775 or www.jpa.com.

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