Compaq Message Board - Msg: 3727928

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Technology Stocks : Compaq

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To: Jack T. Pearson who wrote (22073)	3/16/1998 3:59:00 PM
From: van wang	Read Replies (1) of 97611

Jack...I will take a crack...and CPQ will never admit to this CPQ was first to come that they can make money in sub 1000 PCs...the key is the overhead allocation...they either assumed huge volume so that on a per PC basis the overhead cost is low...or they assigned more cost to higher margin PCs in business desktops...this allocation is under mgmt discretion the economic impact is real...first, they underpriced low end and ...second, they were not as aggressive with high end and hence, all those overhead cost incurred in prior Q sits on the balance sheet with IBM making the aggressive pricing move, the projected lower sales push the probability of recovering the inventory assets to zero and hence the writeoff/firesale to avoid writeoff that was my thinking...but getting people to realize this to short takes time...the problem is worst than people think IMO because all this special discounts will cause small and mid size folks to buy now...and cause demand to fall abit after the fire sale...hope they dont produce too much of the new models because by that time I may be long cheers

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