Jim -
Thanks for thinking
Over the last few months, as you have advanced this theory, I have responded both here, and to you and Chuz on the DELL thread, with my best estimates on the various cost and revenue numbers you seemed concerned about. I have taken some of the issues you suggest and discussed them with friends who are more knowledgeable than I about financial statements and accounting terms, and presented that information back to you.
I believe you are the one who has stopped thinking regarding the assertions you present.
You claimed, based on a couple of rumors and an article about a Radio Shack end of year promotion, that CPQ was stuffing the channel. The information I presented in response indicated that both channel surveys and retail analysis shows exactly the opposite condition. CPQ had pushed too far in the direction of reducing downstream inventory and was scrambling to fill unusually high 4Q demand with round-the-clock and overtime production.
You made no attempt to discuss, explain, or correlate this information, you just dismissed it because it didn't support your conclusions.
You asserted that CPQ was short on cash and could not afford to take the 4Q severance expenses without running out of money. I pointed out that I am no accountant and asked for a better explanation, since it looked to me like CPQ had about $4.4B in cash at the end of 3Q98, and virtually no debt. Also tax credits from the DEC merger which could move an additional $300M to the bottom line assuming pre-tax earnings of $1B or so. Your response on that point was essentially that I didn't know how to read the earnings statements (probably true). So I asked several of my friends who do know how to read such things, including two who are financial / accounting types, to look at the questions.
The kindest thing they said about your position was that it was an 'unusual' reading of the information that was not supported by the public record. Of the four people I discussed this with, not one thought there was any reason to suspect that CPQ was short on cash.
Then you bring up the question of 'how CPQ can possibly reduce its costs enough to hit earnings estimates'. Here again, I could not get anyone else who looked at the numbers to even understand your interpretation of the data. CPQ's costs have not increased from where they were pre-merger, in fact they have decreased significantly, with more than 9,000 layoffs prior to November, and closure of a number of facilities. Revenues, on the other hand, show every indication of having increased across the board. So why would CPQ have less than the 7% pre-tax earnings that the combined entities would have had before the merger? I have detailed my thinking on my estimates for CPQ's 4Q results several times. I believe that consensus estimates are low. My guess, along with those of many others on this thread, are on record and routinely repeated. You have never responded to those posts on the basis of the facts presented.
You certainly did nothing to illuminate your thinking on this issue, just did some projections based on your own convoluted reading of the 3Q numbers, which hardly seem representative of any trend or indicative of future performance, given the merger, clearing of channel inventory, and product line consolidation which was occurring.
So I would say I was the one who spent hours thinking about and exploring your questions, and presenting the data back both here and on the DELL thread for discussion. You responded by shifting to a personal attack and made no attempt to respond to the points I raised.
Jim, I think that is why you are getting negative responses to your posts. We are all interested in exploring any reasonable line of thinking which may affect our investments. We are not interested on a one-sided discussion by someone whose transmitter is stuck on, and whose receiver seems to have been disconnected.
I think you should examine your own motivations for the positions you have taken, and try and discover why you have let your emotions get in the way of a rational discussion and examination of the data.
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