Compaq Message Board - Msg: 2769550

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Technology Stocks : Compaq

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To: S.C. Barnard who wrote (9179)	11/19/1997 5:06:00 PM
From: hpeace	Read Replies (2) of 97611

Scba, with all the inventory in house and with all the pc's they are liable for price protection in channel. cpq will assume that these pc's were mfg'ed and sold with price discounts. So, to compensate for this they can take a reserve against sales. Since they know that what is already sold may have to be discounted in order to move after Christmas. Plus, since prices are dropping rapidly(raw mat'l). They can charge a write off to inventory on hand for it's lower real value in the future. Both these reserves are legal and really what a stock holder would want cpq to do in honestly reporting 4th qtr 1997. If you really know that as you move forward you have done things like have pc's in the channel that need discounting to sale or inventory on hand that really is worth less than it's stated as. Then reporting reserves in 4q97 and lowering sales and profit is the proper thing to do. Plus, they knew they had this situation when they reported 3q97..so, they may have done it then too.. Does this make sense now?????

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