Compaq announced on Jan. 4 it was purchasing the PC distribution arm of Inacom for $369.5 million in cash. The organization, which brings about 2,500 employees in from Inacom, will now be called Custom Edge. It will be operated as a wholly owned subsidiary that's being headed by Mike Winkler, Compaq's personal computing group senior vice president.
The close of the sale barely more than a month after the purchase was announced speaks to how quickly Compaq must make dramatic moves to turn around its ailing commercial PC sales operations.
"We are moving quickly to advance Compaq's direct strategy, evidenced by the rapid completion of this transaction and establishment of Custom Edge in just six weeks," Michael Capellas, Compaq's president and CEO said in a statement.
Compaq has been trying for some time to balance indirect sales of desktop and server PCs through dealers and distributors with efforts to boost profit margins by selling systems direct to its customers.
Selling direct, as Dell and Gateway, reduces costs and inventory. One of the other benefits is that it is easier for them to manufacturer customized PCs with the computer tracking systems and specialized assembly and inventory systems needed for direct sales.
Dell, in particular, has picked away at Compaq's market share as a result of these efficiencies. Compaq revealed in its most recent quarterly earnings statement that its commercial PC division, which made up about 31 percent of revenue, lost $79 million during the fourth quarter of fiscal 1999.
The purchase of Inacom's distribution capabilities will be the key to turning things around, executives have said. In a briefing for financial analysts last month, Compaq executives expressed hope that approximately 60 percent of its PCs for the commercial market in North America will be sold directly to customers--rather than through distributors or dealers--by the end of the year.
Currently, about 85 percent of its PCs wend their way through distributors such as Inacom. Overall, Compaq wants to see 40 percent of its systems sold directly.
Compaq also said today that it has entered into a services, supply and sales agreement with Inacom and will provide the company with a $55.5 million credit line to help expand its services operations.
Under the agreement, Compaq and Inacom said they will together offer repair and support services to corporate accounts, among other offerings.