No money in Compaq boxes: Penman

No money in Compaq boxes: Penman

Australian Compaq resellers still hanging onto the notion that there is a future in just passing on boxes and skimming a margin were given a blunt reminder last week that this is not the case.

He has said it all before, but Compaq Australia's managing director Ian Penman again emphasised that its resellers need to embrace value-added services or do business with someone else.

"Resellers are not going to make money out of Compaq products," Penman said. "They are going to make money out of adding value to Compaq solutions and there is a big difference between the two.

"The days of making a margin from taking a box from Compaq and delivering it to the customer are long gone. I have been preaching this message for five or six years now," he said.

"The reality is there is no room for hardware margin to be provided for the reseller without value being added. If resellers can add value to a hardware- or services-based solution and convince the customer they should pay for the added value, then they have themselves a business model," he added.

Penman was buoyant about Compaq's Q1 results that revealed $US9.51 billion in revenues, up a fraction (1 per cent) from the $9.41 billion it earned during the same period last year. Net income fared a little better with earnings up 16 per cent to $325 million from Q1 1999.

Penman claimed Compaq's Australian results for the quarter ending March 2000 were "very much in line" with what emerged in the global summary. Improved results in consumer PCs were tempered by "slower than expected" activity in commercial desktop and enterprise server solutions areas, he said.

While conceding the results were "not spectacular", he proclaimed them "an improvement" on 1999.

"I must admit it was a slower quarter than we expected although we did adjust our forecasts at the end of January," Penman said. "We made the adjusted figures.

"There is some clear evidence that we are getting it right and we are working on areas that need to be improved. We have been fairly fortunate in Australia and New Zealand as we have been ahead of the pack for a couple of years," he explained.

"There is no doubt that Y2K and now the GST in Australia is having an impact on some of our PC sales," he added.

Penman said Australian revenue and earnings figures would not be divulged, but concurred that the fairly standard equation of Australian IT markets representing "between 2.5 and 4 per cent" of the global figure stands true for Compaq.

The quarterly results declared last week puts Compaq's Q1 Australian revenues at somewhere between $A400 million and $640 million - allowing at this year's low exchange rates.

Branding is a priority at the moment, according to Penman, who said over half of Compaq Australia's business was now in enterprise solutions - as it is globally - but it still is perceived as a PC vendor. He spoke of "some very big enterprise solutions wins" of late and the inordinate attention generated by its retail strategy which represents less than 20 per cent of revenues.

Penman yearned for a better appreciation of the organisation's big picture and a firmer understanding in the channel that its present and future is as a solutions provider, not a box shifter.

"The company that you talk to today is a very different from the one that you used to talk to two years ago," he said. "If there is one message that I would like to get across this year it is that we are about a lot more than just PCs now," he stated.

With all the fuss dying down about the company's Compaq Connect retail initiative which involved setting up direct stores, Penman reflected that the eight-store experiment is "well ahead of schedule in returning to profitability".

The original plan was to test eight stores and get the business model right, "which we have done", and then sell franchises, he said.

Some of the stores, such as the one in Brisbane's CBD, were "already turning a profit", according to Penman, but he wouldn't disclose which stores or how much.

"We will continue to roll out the stores during the year 2000 and into the future," Penman said. "But they will not be Compaq-owned stores.

"We know the model works and we now have a number of people who are very interested in acquiring either franchises or the stores that are already operating. If you are looking for a good business, these are going to be good businesses."

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