Compaq hit by PC price war

Compaq has announced that it may be about to record a loss-making first quarter for 1998, writes Sean Fleming.

The PC giant issued a statement late last week saying that earnings would ?roughly break even?, prompting one analyst to speculate that the company may even make a marginal loss.

The company said it expected sales to reach $4.8 billion, which would be on a par with the first three months of 1997. Compaq chief executive Eckhard Pfeiffer blamed the poor results on slow sales in the US coupled with heavy price cutting, but it may indicate a deeper rooted problem within the industry following on from last week?s profit warnings from Intel and Motorola.

IDC analyst Ian Derbyshire said that while Compaq?s unit shipment figures remained healthy, the vendor appeared to be suffering from a general erosion of margins.

?Part of the problem may stem from the US emphasis on the sub-$1,000 PC market. This is in a more advanced state in the US than it is in Europe.?

If a PC price war has started to hurt Compaq it is unlikely that other PC manufacturers will escape unharmed.

Derbyshire said that Intel?s Pentium II chip had started to impact on Compaq?s server figures. ?Compaq?s server prices are dropping. This is due in part to an increase in competition in general, with Dell pushing into the market for example. But the Pentium II chip may mean there will be a decrease in sales of multiple processor servers.?

Pfeiffer has predicted that while the problem might not go away after just one quarter, it may be unique to the US.

?It would not be appro- priate at this time to label this a one quarter issue,? he said. ?So far we have positive messages from Europe.?