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Compaq Computer is slashing its list of official resellers in greater China by about 66 per cent, to less than 10 from more than 30.

 The move comes less than three months after it said its regional network of companies selling its personal computers would remain intact and is aimed at reducing distribution costs.

 Compaq has not announced which resellers it will keep. It is the fifth largest PC seller in the mainland, according to International Data Corp (IDC), but has lost share and profits since its 1998 merger with Digital Equipment.

 Meanwhile, more layoffs are expected in the region as the company's worldwide restructuring continues.

 'We are cutting off the fat to become a leaner organisation,' said Randy Tan, newly-appointed managing director and vice-president of Compaq China. He gave no details.

 Mr Tan said the move to make its channel distribution network leaner mirrored a worldwide one.

 Two months ago, Compaq reduced the number of distributors for its PCs in the United States from 40 to four to cut costs, better manage inventory and help change to a build-to-order manufacturing model similar to that of fast-growing rival, Dell Computer.

 When a computer is sold through a distributor, the manufacturer often guarantees that if prevailing market prices fall to the extent the re-seller or retailer is forced to discount the computer to sell it, it will make up the difference.

 According to analysts, market prices for PCs can fall by as much as 1 per cent a day. PC makers such as Dell or Gateway typically carry less inventory and sell most of their PCs direct, meaning they rarely need to offer such price protection. 'We are urging the small distributors to work with our larger Compaq-appointed ones,' Mr Tan said.

 In exchange for giving a handful of resellers more sales, Compaq hopes the move will promote greater loyalty. However, the shift to less than 10 resellers is drastic for a company that has depended on a large network of distributors in the mainland to generate more than 80 per cent of sales.

 'We are not leaving the rest out in the cold. We will provide more marketing support and training for them,' Mr Tan said.

 Compaq's PC business in the mainland has been undergoing difficulty since its 1998 merger with Digital Equipment, losing market share to Legend and IBM.

 IDC said Compaq's PC shipments in the mainland dipped 20 per cent in the first quarter this year, compared with the same period a year ago. In contrast, overall mainland PC sales were up 26 per cent in that quarter.

 IDC analyst Kitty Fok said IBM's mainland market share was up at 9 per cent and was second in the mainland to Legend, while Compaq, in fifth place, continued to struggle because of slow response time, limited local support and loyalty issues with its PC sellers.

 'Compaq is having some supply problems on the mainland. Its newly opened factory in Shenzhen is not at full capacity yet and the crackdown on the grey market has also affected its PC sales,' Ms Fok said.

 Henry Tse, director of Compaq Greater China's consumer PC business, admitted the company had neglected the low-end mainland consumer market, where sales were largest and were growing the fastest.

 To change that, Compaq will bring into the mainland some of its bargain-basement PCs, such as the US$599 and $699 Compaq Presarios currently available only in the United States.

 Still, keeping the price tag on PCs down was difficult, Mr Tse said, due to the 34.5 per cent duty on foreign imports to the mainland.

 Compaq admits that the heavy taxation and Compaq's relatively small mainland PC manufacturing operation is why there is a thriving grey market for its PCs. Mainland PC sellers import Compaq computers directly from other markets, such as Singapore, Malaysia, Taiwan or the United States, and manage to sidestep the import taxes.

 'A lot of Compaq PCs were sold through the grey channels [last year] because Compaq could not fulfil demand,' IDC's Ms Fok said.

 Through official channels, Compaq remains slow at getting PCs into the hands of mainland customers.

 It wants its main resellers in big cities such as Beijing and Shanghai to supply other distributors in smaller cities such as Shenyang or Dalian, thus reducing Compaq's involvement and - it hopes - speeding up the distribution process.

 Increasing the number of mainland-made Compaq PCs also would quicken distribution.

 'My aim is to localise everything,' Mr Tse said. 'Compaq PCs for China must be designed and made here.

 'Currently, the models we are selling here are over-configured. The market here just doesn't need so much hard disk, so much Ram and such high-speed processors.' PCs for China must be designed and made here . . . the models we are selling are over-configured. The market doesn't need so much hard disk, so much Ram and such high-speed processors 



Localised and cheaper PCs planned