Compaq denies 'channel stuffing' claim
Compaq has denied rumours that it forced excess inventory on resellers to boost its finances, following analyst warnings of "channel stuffing" in the PC sector.
Compaq has denied rumours that it forced excess inventory on resellers to boost its finances, following analyst warnings of "channel stuffing" in the PC sector.
The company surprised analysts with record results in a strong third quarter which came on the back of industry reports that PC manufacturers had been flooding distribution channels with stock to boost turnover.
Compaq's turnover increased by 22 per cent to $11.2bn over the same period last year, while profit tripled to $550m. Were it not for the impact of foreign exchange rates, Compaq said it would have reported a 26 per cent increase in turnover. The vendor, however, lowered its fourth-quarter projections after claims of a weak euro.
Nick Offin, channel business director at Compaq, denied it had deliberately over-supplied the market. Strong demand from enterprises now free of the millennium bug had boosted turnover, he said. "Companies historically have tried to end quarters with a push, but there is more control in surplus stock now with models such as 'just in time' manufacturing. With smaller margins, companies cannot afford to stuff the channel because they will suffer for it in the next quarter."
In early 1998, a number of PC vendors increased inventory levels to meet inflated sales targets, but then had to cut prices and deal with a flood of returns from retailers.
Charles Smulders, an analyst at researcher Dataquest, said the year-on-year growth of 15.2 per cent in worldwide PC shipments could be misleading.
"We suspect these relatively strong numbers in the third quarter reflect a build-up of channel inventory, and we do not believe the market can support the kind of growth these numbers would indicate," he said. However, he added that the problem was mainly a "US phenomenon".
Andy Brown, a researcher at industry observer IDC, agreed. "In the third quarter we have seen less channel stuffing in the UK than in recent years. The only vendors that tend to do it in the UK are those such as Packard Bell that rely on the fourth quarter to boost the rest of their financial year," he said.