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Backlogged Compaq cuts prices

A series of discounts and promotions mark the company's latest effort to spark demand and reduce inventories held by resellers.

Compaq Computer (CPQ) has cut prices on business PCs and is offering free monitors in the face of mounting price competition and high levels of chip and computer inventories.

The company has also announced a trade-in program for servers and workstations.

The dual initiatives follow recent price cuts and promotions on Compaq's Armada notebook PCs, ProLiant servers, and workstations.

The action is designed to reduce growing inventories of systems with Intel's Pentium MMX chip, as computer manufacturers make the switch to the newest Pentium II processors, according to resellers and analysts.

Seven of the largest distributors--the companies who move computers from Compaq to smaller regional resellers--have about 150,000 Pentium and Pentium MMX units in inventory, said Cameron Duncan, PC industry analyst with Associated Research Services. That is twice as large as the combined inventories of IBM and Hewlett-Packard, which are also looking to reduce stockpiles, he added.

Prices on the flagship Deskpro business line were cut up to 11 percent. A Deskpro 2000 model with a 166-MHz Pentium MMX processor now sells for $859.

Monitor prices were reduced as much as 15 percent.

Compaq is also offering free monitors with all Deskpro 2000 models equipped with Pentium II processors, all Deskpro 2000 SBE models, and the Deskpro 4000S, as well as Compaq's NetPC, the Deskpro 4000N. The promotion runs through May 31.

Low-end Deskpro 2000 machines with 166-MHz and 200-MHz Pentium MMX chips constitute a large proportion of the revenue surfeit, according to computer resellers. The size of the inventory bulge, combined with increasingly tight product and processor cycles, will likely mean further discounts on this class of machines at least through the first half of the year.

Prices could descend to $700 to $800, another reseller said.

"Compaq was on a run rate in the fourth quarter that was strong, and they continued pumping out systems assuming that they were going to increase market share and sales," said Norm Bogen, senior analyst with market research firm In-Stat.

"[But] our opinion is that overall market is slowing down slightly. Worldwide PC market growth in '97 was 16 percent, and that will slow to about 13.5 percent for this year. It's not a dramatic drop, but Compaq was on a growth path," he added.

"It is going to be tough at least through the second quarter," said one reseller who requested anonymity. "Demand is there--it's just not keeping up with supply."

On the server and workstation front, Compaq is offering a promotion for customers who purchase ProLiant or ProSignia models. The program will provide "one-for-one credits to customers who trade in certain non-Compaq servers and workstations and acquire new Compaq servers or professional workstations," the company said.

Compaq is also offering a 4.9 percent financing program for a limited time on all Compaq PC hardware, including laptops, desktops, workstations, and servers, through June 30. Eligible customers must order five Compaq PC hardware units or $15,000 worth of hardware.

"We are putting in place price reductions and aggressive promotions in the first and second quarter to reduce these channel inventories and accelerate the implementation of our Optimized Distribution Model," said Eckhard Pfeiffer, Compaq's CEO, in a prepared statement.

Customers are "just not flocking to systems like they were expected to," Duncan said. An inventory glut is expected to result in price cuts on Compaq's Presario consumer systems as well, he said.

The Deskpro 4000 line gets price reductions from 4 percent to 10 percent. This line of network-ready PCs now starts at $919.

Monitors also fell in price, ranging from 6 percent to 15 percent, including a LCD (liquid crystal display) flat panel monitor. Prices now start at $269 on a 15-inch color monitor. The price of the TFT500 15-inch flat panel LCD display has been reduced by 6 percent and is now available at $2,499.