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

To: PCSS who wrote (33875)	10/6/1998 8:56:00 AM
From: Elwood P. Dowd	Read Replies (2) \| Respond to of 97611

By Herb Greenberg Senior Columnist 10/6/98 6:30 AM ET The Tuesday trounce: Compaq capers: Earlier this year Compaq (CPQ:NYSE) got whacked when it stuffed its distribution channel with too much merchandise. The channel has since been cleared. But over the past week there were rumblings that Compaq was "back-end loading" its quarter, or pulling out all the stops to boost sales. Then Monday, Salomon Smith Barney analyst Rich Gardner wrote a report saying his distribution sources show that in the current quarter Compaq "consummated buy-ins" with several large resellers and distributors. Buy-ins are incentives manufacturers offer distributors and resellers to take more product than they might really want. These incentives include discounts, return privileges and/or generous payment schedules. "To put buy-ins another way," says Jeff Matthews of RamPartners, who blew the whistle here on Compaq's last round of channel-stuffing, "it's a salesman saying he's not going to make his quota." While it is premature to say Compaq is stuffing its channel, even the hint of a channel buildup is troubling, because Compaq has been leading the charge among PC makers seeking to mimic Dell (DELL:Nasdaq) by converting to a build-to-order program. Such a program supposedly would eliminate excess inventory of unsold products, but Gardner and other analysts suggest Compaq's transition to build-to-order has not gone smoothly in part because of a shortage of some popular semiconductor chips. To be sure, Gardner says the amount of the buy-ins is relatively minimal. They appear to be "a transitory symptom of Compaq's supply chain re-engineering efforts." Gardner doesn't believe they've resulted in Compaq's putting any more than $100 million in excess merchandise, or 1% to 2% of its total quarterly revenue, into the distribution channel. Much of that $100 million may comprise superfast PCs that a newly cost-conscious corporate America appears to be rejecting in favor of the cheaper, slower (266- and 300-megahertz) and hard-to-get machines. Compaq, meanwhile, adamantly insists it hasn't engaged in buy-ins but declined to offer details, citing a pre-earnings-release quiet period. A spokesman referred me to several recent press releases in which the company has clearly stated that its business model is now focused on sales by its resellers and distributors, not sales to resellers and distributors. Gardner, who continues to rank Compaq a buy with a target of 40, sticks by his comments and says he hasn't rescinded his report. The stock closed Monday at 27 3/4.