Embattled Compaq revamps operations

Vendor embarks on restructure as Q1 problems drag on.

Compaq's turmoil continued last week as it disclosed details of a radical restructuring amid a second profit warning and further resignations from its board.

According to a statement issued on 17 June, the vendor will incur a net loss of up to $260 million, or 15 cents a share, in the second quarter ending 30 June.

Ben Rosen, acting chief executive of Compaq, said the expected loss was due to the continued effects of 'operational issues that affected Compaq in the first quarter'. He also stated that turnover and gross margins for the quarter would be flat or down on the first quarter.

Rosen's statement was acknowledgement that the problems dogging Compaq, which culminated in a profit warning for the first quarter, were due to internal factors, rather than being an industry-wide problem, as originally implied (PC Dealer, 4 April).

On the same day, Compaq revealed that Andreas Barth, general manager for EMEA, will retire this month after 12 years, to be replaced by Werner Koepf. The departure of Hans Gutsch, senior vice president for human resources, was also announced.

The foundation for the restructuring will see Compaq split into three global business groups, in a bid to bring operating costs under control and slash them by up to $2 billion. The groups are enterprise solutions and services; personal computer; and consumer.

Meanwhile, Compaq will disband direct relationships with all but its top European distributors and corporate resellers next month, in a move that will mirror the culling of its US channel.

The vendor embarked on a drive to address over-distribution, leaving just four distributors and one corporate reseller in the US with which it will engage directly (PC Dealer, 12 May).

Olivier Suinat, director of channel management and marketing, EMEA at Compaq, said the vendor had 'too many stock points' and needed to reduce the number of times stock was handled and associated inventory costs.

He added Compaq was considering co-location with large channel partners, but that it was too early to elaborate on any deal. Announcements are expected in July.

Compaq had previously rejected co-location as a strategy for Europe, claiming the market to be unsuitable for channel assembly (PC Dealer, 13 May 1998).