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Technology Stocks : Vanstar
VST 167.13-2.5%10:55 AM EST
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To: Will Cunningham who wrote (326)12/9/1997 12:42:00 AM
From: Mark Carson  Read Replies (1) of 420
 
but if Vanstar is just trying to please its followers (giving in to the institutional imperative) by giving them what they want to see (growth in product revenue) to get the stock going again, then let's watch closely.
>>
Thats exactly what I am refering to; in mid 1996 Vanstar realized that their revenue numbers were slipping despite EPS growth (due to a leveling of product sales and huge increase in services due to their infrascture investment). In early 1997 they developed the 'revenue at any cost' mentality and obviously product is the fast, easy way to drive revenue.
Unfortunately, (I wish Tauscher was reading this) we both know that the proper answer is showing Wall Street that declinging revenue and increasing EPS is actually a sign of strength (unlike companies like digital who are decapitalizing). Unfortunately Vanstar was unwilling or unable to prove their model was acceptable and they began adopting low margin high revenue contracts.
Vanstar is choosing to ignore (or just incapable of understanding) that PC distribution (Microage, IE) thrives on very low operating costs and very controlled margins. Vanstar's distribution model is inherently more costly and less efficient than most of the other companies. Meaning, they will have to give product away to capture this business, and as you mentioned, this could lead to a very bad long term forecast.

Mark
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