11 March 2002 Systems vendor Hewlett-Packard (HP) has denied claims that it engaged in “channel stuffing” in its last financial quarter in a bid to boost sales figures and stockholder sentiment ahead of the key merger vote next week.
HP’s fourth quarter financial report has been subject to close scrutiny since it reported a surprise 40% increase in US PC sales, compared to the previous quarter.
The increase was three times that of market leader Dell and US Bancorp Piper Jaffray analyst Ashok Kumar has pointed out what he believes is a recent build-up of HP computer hardware with re-sellers in the channel in the US.
However, HP has attributed this to stronger than expected sales during the Christmas period, combined with a number of promotions that also encouraged distributors and retailers to stock up on HP products.
Channel stuffing involves selling more products to middlemen, such as distributors, than there is likely to be end-user demand. This leads to an excessive inventory build-up, which can blight future sales and frequently leads to the vendor having to make a big write-off. However, in the short-term it can foster the illusion of rapid growth.
At the same time, HP’s merger partner Compaq has been criticised for its adoption of a new technique for accounting for the cost of PC promotions, such as giving away a digital camera to buyers of its PCs. UBS Warburg analyst Don Young says that the change gave Compaq a one-time revenue boost of $85 million (€98m) in its most recent quarter.
Compaq denies the charge.