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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Jack T. Pearson who wrote (22073)	3/16/1998 3:33:00 PM
From: Ramsey Su	Read Replies (2) \| Respond to of 97611

Jack, "Compaq is writing off $500M because they have 250,000 PCs sitting on the shelve.." it is generally more common to use one time write-offs to reflect non-recurring expenses. The question is not whether compaq is writing off $2000 or whatever per PC. I am questioning why the double counting or accounting. If they are writing off this inventory problem, then earnings should not be affected. If they choose to take the hit in earnings, then there is no need for a special write/charge off? Is CPQ's problem more than this 250K inventory? Ramsey

To: Jack T. Pearson who wrote (22073)	3/16/1998 3:41:00 PM
From: Roads End	Read Replies (1) \| Respond to of 97611

Jack...My guess is they will bury a lot of things in this quarter. It is a perfect opportunity to do so and could make things easier going forward.

To: Jack T. Pearson who wrote (22073)	3/16/1998 3:45:00 PM
From: Andreas	Read Replies (1) \| Respond to of 97611

Dear Jack, I hate to break it to you. But guess what would have happened to cpq's earnings in the first quarter if they hadn't written off the shit load of excess inventory? They still would have been in the toilette!! Reduced margins resulting from reduced prices is killing profits! Even without the write-off, the quarter would have come in far below projections as a result of the fact that cpq is wrapping dollar bills around each computer they sell. Now add to that the fact that they have a ton of inventory they rammed downed everyone's throat to make the 4th quarter look good and you can see what happens. In other words the loss for this quarter is due to more than just the write-off. It's due to the write off plus all the losses attributable to the computers they did sell at shitty margins.

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

To: Jack T. Pearson who wrote (22073)	3/16/1998 8:23:00 PM
From: David E. Taylor	Read Replies (1) \| Respond to of 97611

Guess I'll add my 2c worth of thoughts to this, which are in two posts on the DELL thread on 3/8 and 3/9: Message 3644997 Message 3649284 IMO, CPQ got themselves into this in Q3 last year by posting such a blow out Q (50% over 1996 Q3) without knowing that the sell through rate out of the distribution channel was less than the factory shipments. Then in Q4, presumably with the DEC acquisition on their minds, they couldn't afford a Q4 flat with Q3 on revenues, so they "persuaded" their channel partners to take on even more inventory than they could possibly hope to sell out before year end. So now, with a good chunk (about $800 million to $1 billion worth) of what would have been 1998 Q1 sales already taken in 1997 Q3/Q4, they have to bite the bullet and straighten out the books. Seems to me they only had two options: (1) Wait and see if they could get the sales out needed in January/February to reduce this inventory, and if that didn't work out, slow down production and take the Q1 hit to even things out, or (2) Re-state Q3/Q4 sales/earnings to back out the unsold inventory, slow down production to get inventories down, and report a Q1 more in line with expectations. My estimation of CPQ's management has certainly taken a peg down. IMO again, CPQ (and the shareholders) would have been better served if they'd taken a leaf out of MSFT's book. Even if they believed they had a blow out Q3 in the bag, they should have kept some of those sales in their back pocket just in case they needed them in Q4 or Q1. I distinctly recall Mason's pronouncement last 9/16 about the Q3 results, and one analyst's comment that "Compaq was so bullish they couldn't see straight". Then we would have seen steady and impressive sales and earnings growth over the last 3Q's without this gut-wrenching disruption, which may well take longer than just the couple of months to get over that I thought at first would be the case. The market sure is unkind to companies that mismanage their sales and earnings streams like CPQ has done. David T.