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To: jim kelley who wrote (48395)	6/20/1998 11:34:00 PM
From: K. M. Strickler	Read Replies (1) \| Respond to of 176387

jk, Butting in here - >>> 4) What do you think happened to the excess inventory in the channel and at CPQ warehouse? <<< I think excess stock is sold through resellers who bought at a 'deep' discount, and sell at a 'discount' At least I bought a Maxtor drive that had been rehabilitated that way, although some of the Maxtor features were missing, like documentation! Regards, Ken

To: jim kelley who wrote (48395)	6/21/1998 1:26:00 AM
From: rudedog	Read Replies (2) \| Respond to of 176387

Jim - Your canine teeth are showing. Grrrrr.... But now I think we're getting down to a substantive discussion. This post has a number of well thought out questions that bear on the real issues. Let me take a swag at my position on them. 1) Are you saying that there is no connection between the excess CPQ inventories carried in the channel and CPQ's price protection policies now or in the past? No, just the opposite. I think that the changes to the channel programs, price protection in particular, are a direct result of the 1Q debacle. CPQ management has known for a long time, years at least, that something would have to be done. Finally missing the 'diving catch' (as they called the quarterly channel stuffing exercise) gave them the opportunity, and the motivation, to finally bite the bullet. 2) Are you saying that there is no evidence of channel stuffing? There is so much evidence that no one who has any contact with the parties involved could possibly be surprised. this has been a routine practice for more than 10 years. Of course they stuffed the channel in every quarter of 97, just as in previous years. 3) Are you saying that the channel stuffing problem does not exist and no evidence can be produced to support the claim? You need a little more definition on this. Where I take issue is the idea that there is currently stuffing going on (or has been at any time since February of this year). I would assert that there is no data that I am aware of to support this idea. My sense of your argument here is that a leopard can't change its spots. I would be very interested in solid data showing any CPQ effort to stuff the channel this year, but everything I have found shows exactly the opposite. So my position could be summed up as 'yes, the leopard did change its spots.' Simple as that - we differ on our view of what is currently going on. 4) What do you think happened to the excess inventory in the channel and at CPQ warehouse? I think they sold it at fire sale prices. There is copious evidence to support this view. 5) Are you saying that the excess inventory is the channel's problem and not CPQ's problem? At this point, financially, it is the channel's problem, but CPQ obviously has a dog in the fight. The channel owns the inventory, and CPQ has eliminated the support that used to exist for this inventory. CPQ's problem here is to change the philosophy of their sales force to start thinking about the channel's customers. This is a critical issue and one that deserves a lot of discussion but probably is not of much value to Dell investors, as I don't think this will much affect CPQ's position against Dell, or the perception of the industry in general. Setting the record straight.... I did not assert that the CRN article indicates that the channel inventory is higher than in the recent past. You asserted that I did. Jim, in post 48329 you said In order for CPQ to achieve the plan outlined, they will have to reduce shipments to the channel quarter to quarter by enough to compensate for the reduction in price protection and returns When I asked why you thought the price protection and excess inventory were linked, you responded in post 48366 Read it for yourself from the CRN article. There is nothing in the article linking price protection to inventory. I don't know how else to read this, it looks like you are presenting a conclusion as fact (i.e. from CRN) when the CRN article does not make this conclusion or even support it as a supposition. I don't doubt your motivation, I think you are sincerely trying to get at the truth. But the average reader could easily draw the erroneous conclusion that you were discussing facts which you had turned up. I have not stated my opinion as fact. You seem to be having some difficulty distinguishing between my opinion and fact on this matter. I believe I have separated the opinion and fact accurately. My point here is that I doubt if a majority of readers could do so. You stated that CPQ did not accept returns or do inventory swaps. What you said was wrong. So deal with it. Stock swaps were a practice in the past. Returns were allowed in the past and will be allowed in the future. The CRN article is very clear about this: "Compaq will also tighten up its returns policies, but resellers will still be permitted to return a "flat percentage" of DOAs and open box systems, although the exact percentage won't be determined until early next month, he said." "Compaq has however, discontinued stock balancing that allowed resellers to swap slow moving products for more current model." I think I am willing to be persuaded on this point. Based on the evidence you have presented, I now believe that CPQ engaged in semantics to maintain the fiction that they don't take returns. This is the 'walks like a duck, quacks like a duck' test - if most rational observers think it's a duck then it probably is a duck, whatever CPQ wants to call it.