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Technology Stocks : Adaptec (ADPT) -- Ignore unavailable to you. Want to Upgrade?

To: Torben Noerup Nielsen who wrote (3753)	9/18/1998 11:34:00 PM
From: Jim Switz	Read Replies (1) \| Respond to of 5944

Something to chew on here, maybe. I was thinking tonight of the various things mentioned in yesterday's CC. One that struck me is that management said it has successfully completed its plan to substantially reduce inventory levels in the channel. I presume it has done so by working with its distributors to ship fewer disti-type products than usual. This has undoubtedly caused a lot of the shortfall we're going to see in gross revenue this quarter (projected to be $140-145M per the CC). Now, assuming the sellthrough in the channel stays more-or-less on track, this should mean that gross revenue next quarter ought to pop back up to at least the $180+M seen in the June quarter without any substantial change in orders, ASPs or product mix. If any of these improve, it's a bonus. Another factor to consider, and this is the one that woke me up tonight. I'm one of those that believes the company will do whatever it takes to not declare an operating loss if it's at all possible. You can flog the products to increase gross sales, and you can cut costs in many ways (which the company has done). But, it just occurred to me there's one more thing the company could have done this quarter to hit an operating profit number, however small -- manage the rate of channel inventory reduction! Suppose you were scheduling a slowdown of shipments to dry out the channel inventory, but realized that by delaying the completion of this effort by just a little bit, shipping a bit more product than planned, you could increase gross revenue enough to hit a small operating profit (even a penny or two would do it). The company said that it's already successfully completed this channel-reduction effort. Now, if you were running things, would you rush this effort to completion if doing so would greatly reduce gross revenue and result in a significant operating loss? Maybe not! So, my theory is that maybe, just maybe, we'll see a penny or so operating profit, thus an upside surprise. Just some Friday-evening random thinking - what am I overlooking here?