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Technology Stocks : Compaq
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To: rupert1 who wrote (59819)4/24/1999 9:13:00 PM
From: Chuzzlewit  Read Replies (1) of 97611
 
Victor: All companies in the sector (as well as companies in other sectors who use distributors) have to deal with the problem of ensuring that there is enough supply in the warehouses by taking the risk of oversupplying and then selling off excess inventory at a discount to make way for new models. Most companies use some form of factoring. This is the nature of the business.

Have you forgotten Dell and Gateway?

Accounting principles are not adequate to the task of simply revealing the complexities of the real world. You could argue that COMPAQ and other companies should use principles that ensure the most conservative presentation of the value of their inventory and their revenues. But why?

So that investors who have put their money at risk can understand the financial situation and performance of the business. That is the function of accounting.

Whatever the historical truth, the fact is that COMPAQ has now reduced inventory and factoring to historically low levels.
How do you know this, if not through accounting? Remember last quarter when Pfeiffer and Mason were crowing about having taken market share from Dell? Sure, they did it by stuffing the channels. Do you know what Compaq's inventory overhang is in the channel? I don't and I don't think you do either. And that's a problem.

Compaq's PC problems stem from the fact that it has an inefficient inventory management model. If it could transition to a direct system it could eliminate the need for factors, eliminate the inventory overhang and take advantage of its component cost advantage. This cannot be done by halves, which is what Pfeiffer tried to do.

CTC
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