Those Dealt A Bad Hand Put On Their Best Poker Faces

Distributors and integrators scrambled to make the necessary adjustments in the aftermath of Compaq Computer Corp.'s dramatic decision to drop 35 of its 39 direct-buying partners.

Publicly, some distributors and integrators dropped by Compaq sought to put the best face possible on a situation channel observers said could prove costly to them. Others, such as Synnex Information Technologies Inc. and Gates/Arrow Distributing Inc., shunned publicity as they assessed the potential damage.

The four distributors that will retain their Compaq direct-buying relationships as of Aug. 1, meanwhile, wasted no time in courting those dropped by the vendor.

Pinacor Inc., which Compaq is dropping, was contacted by all four distributors,Ingram Micro Inc., Tech Data Corp., Merisel Inc. and Inacom Corp.,on the day of Compaq's announcement, said Jim Manton, Pinacor president and chief operating officer. "We will have discussions with all the Alliance partners. At this point in time, I can't say where it will go," he said.

Pinacor will continue to sell its current Compaq inventory, which could be "tens of millions of dollars, if not hundreds of millions," Manton said.

"This was clearly a disappointment, a surprise. Who would have predicted the No. 2 guy, a 16-year partner and fastest-growing partner, would not have been selected?" he said.

Pinacor, Tempe, Ariz., had $1.2 billion in Compaq sales last year and was shooting for $1.7 billion this year.

Pinacor's contract as the preferred distributor of integrator EDS Corp. has come into question with the Compaq move. A spokeswoman at EDS said the Plano, Texas-based company is in discussions with Pinacor but also is considering buying from one of Compaq's four selected distributors.

Compaq's action seemed to have surprised others besides Pinacor. Gates/Arrow Vice President of Marketing Dave Casillo said management at the Greenville, S.C.-based company had not had the opportunity to sort through all the information yet.

At Synnex, Fremont, Calif., Chief Executive Bob Huang would not comment.

Like Pinacor, integrator CompuCom Systems Inc. plans to continue configuring Compaq systems despite the change in the relationship. Dallas-based CompuCom will keep its co-location space in Compaq's Houston plant, said Ed Anderson, CompuCom's chief executive and president. "In simple terms, this is an excellent move in the aggregate," he said. "It simplifies a ponderous process. You can do all you want about terms and conditions, but if you can't fulfill product, it doesn't allow for sales to go up," he said.

CompuCom will buy products from Compaq's Alliance partners, he said.

Meanwhile, John McKenna, chief executive of Rye Brook, N.Y.-based Entex Information Services Inc. said he saw the vendors moving in this direction and made the decision to get out of the product business, selling it to CompuCom in order to focus on services. (See story on page 1).

CDW Computer Centers, Vernon Hills, Ill., also has had a direct relationship with Compaq and is still in conversations with the vendor about the changes, said CDW Chief Executive Michael Krasny. "I think this is proof that Compaq is devoted to the channel. Their product was in too many channels. Being able to lessen the number of places the product is [in] will help it control inventory in the channel."

"It's the best news that could have happened," said Bob Din, chairman and chief executive of En Pointe Technologies Inc., El Segundo, Calif. "We have already established electronic links with all four [Compaq] distributors. Our competitors are really going to have to struggle to establish those links."

Mark Romanowski, vice president of service at integrator Jade Systems Corp., Cold Spring, N.Y., questioned whether smaller resellers will have the same footing as bigger companies. "If larger players are buying in volume and a smaller player buys 10 units, whose order do you think the distributors will fill first?" he said.

GE Capital Information Technology Solutions, Stamford, Conn., bought most of its Compaq products direct but was not surprised by Compaq's decision, said Fred Pugh, executive vice president of global marketing and product management at the company. The $5.5 billion integration firm has not revealed where it plans to source Compaq product. "We have a lot of things that are in the works," Pugh said.

Industry sources said GE Capital ITS is working on a deal with Tech Data, Clearwater, Fla., to handle its back-office operations. Neither company would comment.

DAVID JASTROW, JERRY ROSA, TIM SCANNELL & CHRISTINA TORODE contributed to this story.

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