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Compaq cuts notebook prices

The PC maker reduces prices on a range of Armada notebooks by as much as 26 percent in an effort to move older models.

Compaq Computer reduced Armada notebook prices by as much as 26 percent, part of an effort to move older Pentium MMX models as the more powerful Pentium II processor begins to predominate its lineup, but the transition could be tricky.

A planned pricing action, the drops also pass along savings on component costs and manufacturing, according to the Houston-based company. Most are measured in double digits, and some of the discounted models come with promotions such as additional memory or a CD-ROM drive.

The price cuts affect models in four different lines, but they don't make the MMX systems clearly cheaper than Pentium II models. Nor do they signal the end of product lifespan, except for one model, according to Compaq's Mark Vena, product marketing manager for mobile computing.

Rival vendors such as Hewlett-Packard are beginning to aggressively push Pentium II-based business notebook lines, raising the competitive stakes for price-performance. For example, an Omnibook 4100 model with a large 14.1-inch active-matrix LCD goes for about $3,900 and another model with a 13.3-inch screen sells for nearly $3,300 at resellers such as NECX.

By comparison, some of Compaq's high-end 7700 models with the older Pentium MMX processor remain as high as $3,800. With today's cut, the 7792DMT falls to $3,799 from $4,479, a 15 percent drop. In February of this year, the 266-MHz Pentium MMX system with a 13.3-inch screen was selling for $5,699.

The Armada 4220T--the latest upgrade in the 4000 series, introduced to much fanfare two years ago--falls to $2,799 from $3,219, a 13 percent cut. Compaq's slimmest portable comes with a 266-MHz Pentium MMX processor, a 4GB hard disk, and a 12.1-inch active-matrix LCD screen. Compaq is also offering an additional 32MB of memory with this system, for a total of 64MB.

The system can accommodate a CD-ROM drive, but only as part of an optional docking station that attaches underneath the unit. Compaq does not have a truly thin-and-light model in its lineup, but has said it will introduce such a model by the end of the third quarter.

In the 7300 series, a comparatively thin line that does include a CD-ROM, prices fell as low as $2,999 for 233-MHz Pentium MMX system with a 12.1-inch screen. The biggest price cut came on the 266-MHz model, the 7380, which fell from $4,089 to $3,499.

Interestingly, Compaq's consumer Presario line of portables is also challenging the Armada business line. For example, a 266-MHz Pentium II-based Presario with a 12.1-inch active-matrix screen is now selling for $2,999 at retailers. Pentium II Armada systems tend to be priced well over $4,000 and often at the $5,000 mark.

Compaq will "completely transition" to Pentium II systems by the end of the third quarter, but the company has no plans to discontinue the MMX systems, according to Compaq's Vena.

"You'll still see very healthy demand for MMX products going forward," he said. "Corporate clients want to complete their rollout plans."

Today's cuts are part of Compaq's planned notebook pricing for 1998, Vena added, declining to comment on the company's earlier struggle with too much inventory in the network of computer resellers known as the "channel" because of tomorrow's scheduled quarterly earnings report.

Analysts like Dataquest's Mike McGuire suggested that the need to clear out MMX models that are "stuck" is part and parcel of the effort to prepare the way for new systems due out later this year.

"These [cuts] are what you'd expect, as well as an anticipation of what's coming out in the fourth quarter, in the Comdex kind of time frame," he said. "You've got to move all that stuff out before anybody will take anything for fourth quarter."

In addition to falling component costs--chips, memory, hard drives, LCD screens--Compaq has nearly completed the transition to its Optimized Distribution Method (ODM), Vena said. ODM is a build-to-order scheme designed to reduce costly inventory and prevent the manufacture of models that the channel isn't selling.

All but the Armada 1500 and 1700 series are now made under this scheme, Vena said, noting the changeover should be completed next month.

Earlier this year, Compaq cut notebook prices in March and, following the introduction of Pentium II systems, again in June.

Tomorrow, the Compaq will report its quarterly earnings, which are expected to be flat, not counting a charge for its recently completed purchase of Digital Equipment.