Channel starts to suffer from Compaq's pain

Compaq's aggressive price cuts and promotional deals are starting to pour in, which usually means nothing but good news to customers.

But resellers are now feeling the financial squeeze, and Compaq service is starting to suffer.

Reseller sources in the US are complaining about the PC giant's ability to make good on its promotional packages and warranty programs, and thus Compaq's vast VAR network is scaling back on servicing Compaq PCs.

One source said several mid-size resellers refused to service Compaq PCs that were not purchased from them directly because recouping the maintenance costs from Compaq has been challenging, if not downright impossible.

Theoretically, Compaq's network of authorised channel partners are commissioned to service Compaq PCs regardless of the point of purchase.

The result is that Compaq customers may find their resellers are no longer offering discounts on new PCs and may encounter difficulty servicing existing systems.

Another bone of contention for VARs has been Compaq's pre-arranged discount for large accounts, dubbed the Atlas Agreement, by which customers receive a four per cent discount on systems purchased through participating resellers. The discount is covered by the VAR in the form of a rebate check, which is sent to Compaq for reimbursement. Several VARs have discontinued offering the Atlas Agreement because of difficulty in obtaining the rebate, sources said.

Such malcontent among its resellers comes at a bad time for Compaq, which has been widely criticised for dumping inventory into the channel and offering aggressive prices and promotions to sell the stock to customers.