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CompUSA to make PCs again

Despite one failed attempt at its own computer brand, the major retailer will come out with a new line of PCs in September.

Despite one failed attempt at its own computer brand, CompUSA (CPU) said it will come out with a new line of PCs in September aimed at taking away market share from Dell Computer (DELL) and Gateway 2000 (GTW).

Driving CompUSA's second attempt in this market is the "build-to-order" manufacturing strategy that has gained significant industry momentum. The practice is expected to drop costs and level the playing field between the direct marketers and the rest of the computing world.

However, while CompUSA can boast of an enviable reach into both the consumer and corporate markets, the Dallas-based retailer also some distinct disadvantages. Namely, it doesn't have an established brand name, and its contract manufacturers have never done this before.

CompUSA has gone down this road once already--unsuccessfully. The retail giant's previous house brand, Compudyne, has been phased out because, CEO James Halpin said simply, "it didn't do well."

The Compudyne line sold reasonably well three years ago. But when products with more recognizable brand names came down in price, Compudyne's market shrank.

Despite the Compudyne experience, Halpin says the new computers, called the "CompUSA PC," will succeed. "We've done research showing that people would consider buying a CompUSA computer," he said.

"The [CompUSA] name has picked up a following" in the last few years, said Richard Zwetchkenbaum, an analyst at International Data Corporation, but not in computers.

The retailer's new line of computers, which will contain components supplied by Intel (INTC) with processors reaching up to the 266-MHz Pentium II, are designed to undercut two distinct markets: the mail-order sales led by Dell and Gateway and the "house brand" business of computer dealers that make their own clones.

"Close to 10 million units went out in that [dealer] segment last year," Halpin said. As for the mail order segment, "our computers will sell for less than Dell's and will deliver higher quality."

Rival OfficeMax(OMX) is coming out with a similar program, he added.

Build-to-order manufacturing requires complex logistical and inventory systems that will give the manufacturer rapid access to thousands of components. Compaq Computer(CPQ), which recently unveiled such a program, spent two years revamping their systems and redesigned their computer chassis to prepare for the program, according to Compaq vice president Jim Schraith. Dell and Gateway have invested millions on systems that allow them to build computers on the spot.

Success, of course, would accelerate the build-to-order phenomenon, allowing customers to increasingly customize their computers and lead to a drop in prices.

"With build-to-order, there will be more customization. It's also a way to lock customers in," said Steve Cohan, president of Entre Computer Centers in Colorado, and expand Intel's influence in the market.

Halpin acknowledged that CompUSA's systems will be built by at least two domestic contract manufacturers that have yet to use build-to-order techniques themselves. "They currently aren't doing it. They are gearing up for it."

A leading candidate is Intel, according to various sources. "Intel is always good. They built the initial Hewlett Packard Pavillion," Zwetchkenbaum said.

Halpin would not provide the names of the contract manufacturers. He was quick to point out that his company's retail and network is a distinct asset that the other build-to-order manufacturers can't yet match.

"Retail is only 60 percent of our business. We're the third largest in corporate America. We're the third largest in government. We're the third-largest mail order and the largest independent training center," he said.