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Compaq's trade-in PC program questioned

To be eligible for Compaq's program, customers must buy extras to qualify, such as an extended warranty, which could nullify the trade-in value of their PCs, analysts say.

Analysts called into question the value of consumer PC trade-ins following a new program announced yesterday by Compaq Computer.

Compaq yesterday unveiled the Owner Advantage program, following the lead of the Gateway YourWare program, which lets consumers trade in their used PCs after 24 months.

To be eligible for Compaq's program, customers must buy extras to qualify, such as an extended warranty, which could nullify the trade-in value of their PCs, said analysts.

The program is fairly straightforward. Consumers must have bought their Presario PC after January 1 and registered it within one year to qualify. They must also have bought an extended two-year warranty, prepaid for a year of Compaq.net service, or financed the PC through Compaq Financial Services.

The Presario buyer can then trade in the PC anywhere from two to five years later based on the Orion Blue Book value. Unlike Gateway's program, where customers must return the PC to the company, Compaq Owner Advantage issues a credit of value against the new purchase. The buyer keeps his old system.

But analysts viewed the program as more of a marketing concept and a response to the success of YourWare.

"It's a good customer retention value that they don't need to return the PC," said Shelly Olhava, analyst with International Data Corporation. But she pointed out Compaq probably saves money by not having to deal with the expense or hassle of taking back old PCs.

Roger Rohrs, publisher of Blue Book, also questioned the value of the PCs in two years because of rapidly falling PC prices.

The average price of a PC sold in the United States is expected to be $1,757 in 1999, according to Merrill Lynch and Dataquest. That average price is expected to fall to $1,365 in two years.

"If you were to pay $5,000 in 1982, you would get a top of the line system, but today you can't spend that kind of money," said Rohr. "Today, you're only spending somewhere in the neighborhood of $1,700 and $1,900 and you get 550 MHz."

For perspective, the Blue Book value of a Presario 9240, a 133-MHz Pentium PC with 16MB of RAM, 1.2GB, 4X CD-ROM drive, 14.4-kbps modem, and 14-inch monitor is $286. The system sold for a retail price of $3,290 in 1996.

For about the same price, a consumer today could buy a fully loaded Presario 5700T with 600-MHz Pentium III processor, 44GB hard drive, and much more.

But analysts questioned how many consumers today demand that much performance when $1,800 would get them a comparable system. The issue then is how much would that system be worth in two years? Maybe not much, said Rohr.

It's not fair to just single out Compaq, said Olhava, who pointed out Gateway faces a potentially similar fate.

Lindy Lesperance, analyst with Technology Business Research, also questioned the impact of the required extras to qualify for the program. Compaq.net can cost as little as $120 and a two-year on-site warranty about $110.

These extras and the deprecation of PCs in a market of plummeting prices make the trade-in more of a benefit to Compaq than consumers, said Lesperance.

Compaq must also contend with the impact of sub-$1,000 PCs, a market segment it helped pioneer. Only one of the top-selling retail PCs in June, the Apple iMac, topped $1,000, according to PC Data. Compaq placed third with a $784 Presario.

"It's really up in the air what consumers are getting," said Lesperance. "You can get a Presario today for $599. What's it going to be worth in two years?"

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