Compaq Computer Corporation and Subsidiaries - Page 19




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          experienced significant manufacturing and quality problems when             
          it converted the machines to vision technology.  Compaq U.S. was            
          unable to provide technical assistance to Xetel because the                 
          machines were not Fuji machines.                                            
               In addition to difficulties with subcontractors having                 
          different machines, Compaq U.S. also experienced difficulty with            
          subcontractors that used different processes, including Texas               
          Instruments.  Although Texas Instruments had acceptable quality,            
          its use of the batch process of manufacturing created some                  
          difficulties in shipping PCA's on time.                                     
               Compaq U.S. purchases from Compaq Asia were nearly identical           
          to purchases from unrelated subcontractors, but there were some             
          differences in the transactions between the parties.  For                   
          example, Compaq U.S. incurred additional freight and duty costs             
          annually when dealing with Compaq Asia in the amounts of                    
          $2.6 million and $1.2 million, respectively.  With respect to               
          materials, Compaq Asia was responsible for leftover parts while             
          Compaq U.S. reimbursed unrelated subcontractors for leftover                
          parts.  In addition, Compaq U.S. paid Compaq Asia in 90.9 days              
          while unrelated subcontractors were generally paid in 30.3 days.            
          Another transactional difference was that Compaq U.S. paid for              
          setup charges in transactions with unrelated subcontractors in              
          the amount of $2.9 million during 1991 and 1992 while not making            
          comparable payments to Compaq Asia.                                         





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