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Compaq sales slump prompts price cuts

After suffering slower than expected sales in February, Compaq Computer said today it will try to attract more sales with selected, and so far unspecified, price cuts.

After suffering slower than expected sales in February, Compaq Computer said today it will try to attract more sales with selected, and so far unspecified, price cuts.

"While we expected seasonally slower sales in January, February sales have not met anticipated growth levels," said Eckhard Pfeiffer, Compaq's president and CEO, in a written statement.

The company is also going to step up promotional marketing in an attempt to still meet a first quarter sales plan that forecasts nearly $4 billion in sales, 35 percent more than the $2.96 billion reported for the first quarter last year. The company is also hoping to maintain earnings above the 80 cents per share reported a year ago.

The company said, however, that the cost of additional marketing plus revenue lost to price cuts will probably mean that gross margins will drop below the 21.7 percent that Compaq earned in the fourth quarter. To try and compensate, Compaq will adjust operating expenses to lower levels.

In his prepared statement, Pfeiffer attributed the problems to a higher level of competitive pressure, but said the company had no evidence of a general market slowdown.

Compaq's announcement today echoes a study released earlier this week from Computer Intelligence InfoCorp that reported that all three of the top U.S. systems vendors have been losing market share to newcomers. The market share of the top three--Packard Bell, Apple Computer, and Compaq--declined from 70 percent to 56.6 percent of sales in the fourth calendar quarter of 1995, according to the report.

Apple registered the largest decline, dropping 5.6 percentage points to 11.2 percent of the total retail PC market. Compaq dropped 2.2 points to 17.5 percent while Packard Bell lost 5.4 points with a total of 27.9 percent of the market, according to Computer Intelligence InfoCorp. The report cited Acer and Hewlett-Packard as the two companies that gained the most during the same period.

Pfeiffer said he is confident that the next-generation notebook PCs, Pentium Pro-based desktops and servers, and multimedia consumer PCs the company expects to introduce this year will counter any financial downturn experienced this quarter.