To better compete with Dell Computer Corp.'s offerings, Compaq today announced it would reduce prices on its Deskpro computers by 4% to 22%. It also announced 13 new low-priced PCs that it will center around a build-to-order distribution model.

Hewlett-Packard Co. is expected to announce reductions as high as 25% on its corporate desktop Vectra PCs on Monday, and other PC vendors are likely to join the fray, according to analysts. "The customers will win. They'll get better price/performance," said senior analyst Charles Smulders at Dataquest in San Jose, Calif.

Dell's PCs are cheaper than Compaq's because Dell sells directly to customers. But Compaq's new build-to-order distribution plan will allow the company to cut manufacturing costs and lower the prices of PCs so that it can better compete with Dell's prices, Compaq officials said.

Compaq will build 13 new PC Deskpro models using the build-to-order plan in North America, then expand the scheme worldwide, company officials said. The company also will create a Channel Configuration Program in which Compaq will provide configurable computer products to allow channel partners to build computers based on users' orders, the company said.

The new business model is a smart move, a perfect blend of the best aspects of direct sales with the best aspects of retail sales, analysts said. "Compaq cannot afford to go direct sales. It would lose channel support," Smulders said. While Dell sells computers directly to the user, Compaq's method will take custom orders from users or from the channel, rather than building computer packages that it thinks users will want. As a result, Compaq won't lose money by having its PCs sit in the channel, depreciating while waiting to be sold. By saving that money, the company can sell its PCs at lower prices, Smulders said.

Compaq's new distribution model will be a big challenge because it requires channel acceptance, but if the company is successful, other PC vendors may be forced into similar plans, Smulders said.

The new build-to-order Deskpro 2000 series and 4000 series, which will feature Intel Corp. Pentium MMX processors ranging from 166 MHz to 233 MHz, 16M to 32M bytes of RAM and 2.1G- to 3.2G-byte hard drives, will cost $1,199 to $2,089.

Smulders said Dell will probably review its approach and see if it can lower PC prices even more, but not all analysts agreed. Dell will probably take a wait-and-see attitude before making its move, said analyst Roger Kay at International Data Corp. in Framingham, Mass.

"They are the target of all this activity. They're the ones to beat. They'll move after the other guys do," Kay said.