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

To: Tom M who wrote (24533)	4/17/1998 3:25:00 PM
From: uu	Read Replies (2) \| Respond to of 97611

This law suit is much funnier than Paula Jones's law suit!! Sometimes I wished I had studied to become a lawyer than an engineer. They sure make a heck of lot more money than I do. But then I am not so sure if I could have slept at night with a clear conscious! Regards, Addi Jamshidi

To: Tom M who wrote (24533)	4/17/1998 11:33:00 PM
From: rudedog	Read Replies (3) \| Respond to of 97611

This is a weak basis for a lawsuit, since CPQ has stuffed the channel at the end of the quarter every quarter for at least the last ten years, long before EP became CEO. It was a strategy invented by Ross Cooley to smooth out the forecast process so the factory could have reasonably even build plans. It will be child's play for CPQ to show that there was no difference in the seasonal pattern for 1997 as opposed to the last 40 quarters. The idea was that the factory would build to a general demand forecast and in the last 4 weeks of the quarter, CPQ would look at actual demand ('sales in') versus build plan. If the real demand was high, great - but if demand was low, then offer incentives to the channel to add a little inventory so that the factory could continue to build at an even rate. This worked well for several years but gradually became a kind of 'drug' - the channel figured out that they could get better pricing by waiting for the end of a quarter, and they would work special deals with their customers based on the anticipated end of quarter deals from CPQ. This put CPQ on the hook not to break the pattern, since sales depended on the discount structure. Eventually the pattern became exactly the opposite of the desired demand curve - low demand at the beginning of every quarter, with the factory building in anticipation of a huge rush of orders at the end of the quarter. Guessing what this last minute rush would be was always a challenge, it became known as the 'diving catch'. CPQ moved in 4th quarter 97 to eliminate the end of quarter incentives, but the policy was not supposed to become effective until end of 1st quarter 98 - about 3 months too late.