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HP sets sights on Compaq

HP revamps its entire product line in a drive to wrest PC market leadership from Compaq.

Hewlett-Packard (HPW) has revamped, refreshed, and reorganized its desktop and notebook computer lines in an effort to become a leader in nearly all markets by year 2000.

To start, two new lines of desktop computers will be spun out of the Vectra line. The Brio line, which will come out next month, will be a new line of desktops for the small business market. Models will contain management software and other features to make them easier to use or connect to the Internet.

The Kayak line, on the other hand, will be single and dual processor Pentium II workstations geared toward number-crunching customers such as banks and trading houses. Certain configurations will also be aimed graphics professionals--so-called Apple orphans--looking for a 3D-capable, multimedia-intensive PC alternative, said Jacques Clay, vice president and general manager of the Extended Desktop Business Unit at HP. Kayaks, which will contain processors running up to 300 MHz, will range in price from $2,250 to $17,760.

"Our goal is to change or strategies to make HP a market leader by the year 2000," claimed Clay.

HP OmniBook notebooks will get a similar reworking. Yesterday, the company showed off a three-pound Pentium 233-MMX notebook measuring 18.4 millimeters thick that will come out in the first quarter of 1998. Developed in conjunction with Mitsubishi, the ultra-thin notebook sports a magnesium case and resembles an airline tray-table.

In the interim, HP will release a new series of standard-sized notebooks in the coming quarter based on the new 200-MHz and 233-MHz Pentium MMX mobile processors unveiled by Intel yesterday. There will also be a series of corporate-support initiatives centered on notebook management and configuration.

"We are going to differentiate ourselves on quality support programs," said Greg Munster, product marketing manager, mobile computing division.

The overall product effort will be complemented by underlying changes in HP's distribution and logistics network, said Clay. Under the Extended Solution Partners Program, HP will roll out a series of initiatives that will move final manufacturing closer to the time a customer orders a machine. Under one initiative, for example, HP will ship semicomplete computer systems to select distributors and resellers, which in turn will insert the hard drives, memory, or other features.

"We think that we will be able to reduce costs and hence reduce expenses by 5 to 15 percent," Clay said.

While such programs will make HP more competitive with direct marketers such as Dell and Gateway 2000, Clay strongly stated that HP had no plans to start selling computers to customers directly. Instead, it will continue to sell its wares through its established network of resellers. "If one company wants to become a market leader, it has to rely on the indirect channel," he said.

HP has recently experienced a series of uneven quarters and reported earnings below expectations. Nonetheless, analysts were generally upbeat on HP's prospects.

"I think they can pull it off. They have the ability and skills to do it," said Jay Stevens, technology analyst at the Buckingham Research Group. Notebooks, for instance, could become a growth market based on the appeal of the new products. HP has characteristically not been one of the top producers in this field, leaving them room to grow; at the same time, the new ultralight notebook represents a new form factor. Stevens predicted that the company could report earnings of 80 cents a share in the current quarter, although currency exchange rates could greatly affect the final result.

Ian Morton, an analyst with Hambrecht & Quist, added that the overall of HP's logistics and manufacturing network was a necessary step that follows what competitors have already implemented. "It's an important trend. We'll start seeing results from a cost-savings standpoint in mid '98."