How can MCK be so sure about their future estimates?
That is an issue to some degree, but we're not looking at a >loss< of
sales per se, but more likely a delay in when sales can be considered
completed. The fact that they're correcting this (removing the risk
that contingent sales might not in fact occur) should make their
future estimates >more< reliable, not less.
My guess (and it's only a guess) is that HBOC has been doing try-and-
buy sales. They install their software, let the client bring it up
to speed, provide some installation support (and record the "sale",
or a potion of the sale), and later (1 month? 3 months? 6 months?)
when the client is satisfied, the (rest of the) payment is made to
complete the sale.
This kind of accounting moves the sale forward, but if the software is
rarely removed before payment, then the risk of having to back out a
contingent sale is minimal. McKesson must be enforcing a tighter
accounting opinion on HBOC which could be forcing the recognition
of a sale out a bit further. The drawback to this more conservative
approach is that sales figures could prove to be more volatile from
Q to Q, and thus could reduce some investors' enthusiasm for the
stock. With HBOC now combined with McKesson, that kind of volatility
concern may be less of an issue (other than scaring the bejeebies out
of the entire shareholder community).
RP |
