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Technology Stocks : Compaq
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To: Chuzzlewit who wrote (59815)4/24/1999 7:51:00 PM
From: rudedog  Read Replies (1) of 97611
 
Chuz -
I don't think there are accounting irregularities, but there are accounting problems.
I agree 100% on this. First, the accounting you refer to (channel inventory and contra-revenue) does not exactly pop up on the balance sheet. But the introduction of both the Digital and Tandem businesses created a great deal of additional confusion. Both DEC and Tandem do extensive development as opposed to classic CPQ - back in '95 CPQ had an R&D target of 3% of revenue, which they pretty much stayed within.

Prior to the merger, Tandem used to have numbers like 16% and 18% of revenue, and also capitalized some R&D which further confused things. I didn't follow DEC closely before the merger but several old hands from DEC said that they had a lot of transfer charges (much like IBM) which allowed one business group or another to look good independent of real performance. One person described the DEC "pendulum" where any product line which was making money got burdened but those that were losing money had most of their costs sucked up as R&D.

I can not imagine how all of those different ideas about how to account for the business get rolled up into a single comprehensible picture. I think that one of the first tasks the new team should take on is to simplify the ways that they account for operations and sales and have that apply across the board. I can't imagine that even high level CPQ managers can understand how their individual operations tie into overall corporate health, as was obvious last quarter.
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