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Technology Stocks : EMC How high can it go?
EMC 29.050.0%Sep 15 5:00 PM EST
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To: Gus who wrote (12837)7/9/2001 8:01:56 AM
From: GVTucker  Read Replies (1) of 17183
 
Gus, RE: EMC is developing a reseller channel for Clariion and the risk of forecasting failures are higher there, but Clariion is still only 7% of revenues.

A buildup of inventory to support a reseller channel for a subsidiary that represents 7% of revenue does not justify inventory moving from about 40 days of hardware sales to about 70 days of hardware sales. That increase is significant.

1) Inventories are stated at the lower of cost (first in, first out) or market, not in excess of net realizable value

2) In addition, EMC's revenues in any quarter are substantially dependent on orders booked and shipped in that quarter and its backlog at any particular time is not necessarily indicative of future sales levels. This is because:

- EMC assembles its products on the basis of its forecast of near-term demand and maintains inventory in
advance of receipt of firm orders from customers

- EMC generally ships products shortly after receipt of the order

- customers may reschedule orders with little or no penalty

Very similar boilerplate language in Cisco's 10-K didn't prevent a significant write off.

Note that EMC builds its products partially on the basis of a forecast. That forecast can prove incorrect, especially is there is no penalty for order rescheduling.
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