Compaq to shorten US inventory cycle

With its announcement last week that it lost $US36 billion during the second quarter, Compaq is feeling the effects of costs associated with its Digital acquisition, as well as its price-slashing efforts to clear its channel inventories.

The loss follows the company's announcement of flat earnings during the first quarter. Those results were blamed on a glut of inventory in Compaq's US channels, which the company promptly said it would work to clear. Compaq now said changes implemented in its channel-sales strategies have brought its enterprise products inventory levels down to three and one-half weeks.

Jim Finlaw, a spokesman for Compaq, said the company is making a strategic shift to selling directly to customers, by using the combined strengths of Compaq's sales personnel and that of its channel to move product out the door.

Amir Ahari, an IDC analyst, agreed that Compaq's inventory needed streamlining and warned that its new strategy will require Compaq to efficiently use the combined Digital/Compaq sales force.

Still, Compaq's three and one-half week inventory doesn't near Dell's scant eight days, but Compaq refuses to fully endorse the direct-sales model. The company will instead rely on a multifaceted approach of channel sales and build-to-order units, bolstered by a Web presence and select systems integrators in Compaq facilities.

However, this varied sales approach may still need polish.

"In order for this to have a lasting impact, they have to have their supply chain implement the build-to-order and channel configuration plans aggressively," Chu said.

An IBM spokesman agrees that Dell's model continues to have an impact on the US industry.

"From the standpoint of cost, inventory is the killer," said Tim O'Malley, a channel sales manager at IBM.