Compaq discontinues ProSignia line

P-r-o-S-i-g-n-i-a.

As previously reported, the Houston-based PC maker today will kill off its ProSignia line of small-business computers and resurrect it under its popular Deskpro corporate PC and Armada portable brands.

Compaq also plans to retire its Deskpro EP series PCs, shift some features to its EN corporate computing line, and introduce a new desktop line: Deskpro EX.

On one hand, the move is recognition of defeat--Compaq's failed attempt to re-engineer manufacturing and distribution by selling ProSignia largely directly. But considered another way, ProSignia's departure is a step forward, as Compaq maximizes distribution assets acquired from bankrupt distributor Inacom and simplifies how it builds, brands and sells PCs.

From the start, ProSignia confused Compaq customers, PC Data analyst Stephen Baker said.

"It seems like an extra line Compaq didn't need," he said. "You don't need to have a million PCs. It was kind of confusing because they used ProSignia for both desktops and notebooks, and it was an old Compaq server line."

Compaq's corporate line of systems, by contrast, segregates brands: Deskpro PCs, Armada notebooks, and iPaq Internet appliances and handhelds.

"It makes sense to work that Deskpro name," PC Data's Baker said. "They're moving more toward iPaq as well, and that gives them two pretty well-differentiated lines."

Compaq found that rather than buying ProSignia, many small- and medium-business customers opted for the better-known Deskpro EN or EP desktops and Armada notebooks, even though ProSignia prices tended to be lower and more competitive with Dell Computer.

"This is part of the whole simplification of our product line," said Lisa Baker, product director of Compaq's North America desktop group. "We really want to get some clarity around the brand and sub-brand. Within the Deskpro line we'll have a series of products called EXS, which is exactly what ProSignia is today. It's going to be easier for SMB customers to know what to buy."

Under the Deskpro and Armada brands, models specifically targeted to small and medium-sized businesses will be designated with the "S" extension, as in EXS.

Besides branding issues, ProSignia's disappearance underscores changes Compaq has made to how it manufactures, distributes and sells PCs.

When the PC maker launched ProSignia in November 1998, it attempted a bold re-engineering of its supply chain, moving away from indirect sales through dealers to a more direct model, similar to Dell's.

The advantages of such a move meant lower manufacturing and distribution costs and thus higher margins on every system sold. But because Compaq paid dealers on average a 6 percent fee for systems sold to their customers and the number of direct sales failed to yield gains comparable to Dell, ProSignia in some ways created more troubles than it solved.

In a recent report, Technology Business Research analyst Lindy Lesperance concluded the company's "mixed messages to its channel partners when it first embarked on its campaign to increase direct sales" hurt Compaq's standing with its dealers.

Something else changed after ProSignia's launch: management. In a shake-up that sent former Compaq chief executive Eckhard Pfeiffer packing, the company reorganized into three autonomous product groups: commercial systems, consumer, and enterprise systems and services.

Longtime Compaq executive Mike Winkler took over the company's money-losing PC business and spent a year cutting the fat out of manufacturing and distribution and taking more business direct.

After realizing the company could not build the infrastructure it needed quickly enough, Compaq acquired distribution assets from Inacom and from them established the Custom Edge subsidiary under Winkler.

These changes brought Compaq's commercial PC division back to profitability in the second quarter and increased direct sales 40 percent in the United States and 25 percent abroad.

With Custom Edge, ProSignia's efficient manufacturing approach--state-of-the-art nearly two years earlier--paled in comparison. With five chassis and other design differences, ProSignia no longer fit into Compaq's long-term PC goals. By customizing Deskpro and Armada models for small businesses, Compaq hopes to cut costs and boost margins.

"We're simplifying our manufacturing, we're lowering our supply-chain cost, and we're making it easier for the customer to choose what's right for them," Compaq's Baker said.

"This does not change at all the hybrid model, where customers choose how they want to buy," she said. "We want to sell more products direct, but we also have a whole network of partners that we want to continue to support, particularly in the (small- and medium-business) market." Baker said about half those customers buy direct and the rest prefer local dealers.

During the next few months Compaq will also retire its Deskpro EP line, which had been targeted more at early adopters, and will reposition EN models with broader features that have appealed to many corporate buyers, such as the EP's flexible chassis design.

The EX series will offer the newest technologies and S models for small businesses, Baker said. Compaq also will introduce new EXS models on a quarterly basis, much more frequently than Deskpro EN.

ProSignia's replacements will be available immediately. On the desktop side, the entry-level Deskpro EXS, with a 566-MHz Celeron processor, 64MB of memory and 10GB hard drive, sells for $699. The sweet-spot system goes for $1,034, with a 733-MHz processor, 64MB of memory, a 16MB video card, a 15GB hard drive, a 48X CD-ROM and a network card. Both configurations come with a choice of Windows 95 or 98.

Two Armada notebook models will be available initially. The Armada 100S, for $1,099, packs a 533-MHz AMD K6-2 processor, 12.1-inch display, 5GB hard drive, 24X CD-ROM drive and 56K modem. Compaq also offers the Armada E500S, a more full-featured portable, starting for $1,000 more.