Compaq waves white flag in PC price war

Can one side only declare a truce?

Here is an example where determination to deliver short-term shareholder value could harm long-term company success.

Compaq CEO Michael Capellas is reported to be pulling his company out of the PC price war. According to
CW360.com, Capellas told analysts at Merrill Lynch last week that there were no more price cut plans, and Compaq would walk away from deals where pricing was too low.

In other words it is prepared to lose market share to Dell rather than take a loss on hardware sales.

This will please Wall Street... but is it wise? Compaq will end up making Dell stronger. The risk is that this will leave Compaq weaker.

Compaq already ceded the crown to Dell as the world's biggest PC manufacturer, earlier this year. It has already told analysts that it would no longer focus on being the world's biggest PC maker (just as well, really), and now it says it won't fight all the way on price.

In the last major PC price war in the early 1990s, Compaq, under Eckhard Pfeiffer, led the way, killing off huge numbers of competitors.

This time it is Dell's turn to drive down prices. Trouble is, when Compaq loses tenders against Dell, it (and its resellers) gains an increasingly serious competitor in its corporate accounts for high-margin server and storage business. Dell has declared its intention to torch network storage prices - there is an awful lot of margin fat to burn. ®

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