Article is, on its face and on many levels, financially illiterate and incredibly stupid, and deliberately confuses apples with oranges.
Lernout and Hauspie have engaged in many fraudulent money-laundering operations with the "shell companies" and false booking of sales (U.S. SEC, Securities and Exchange Commission v. Lernout & Hauspie Speech Products, N.V. Civ. No. 1:02CV01992 (D.D.C.), October 10, 2002). L&H fraud had nothing in common with the bursting of the telecom / dotcom bubble.
What they are supposedly accusing Fiorina of doing is known as "vendor financing" which is a legitimate way of doing business, and has existed at Lucent before Fiorina, has existed before Bell Labs was spun off as Lucent from AT&T, has existed before AT&T, has existed before Nortel, Alcatel, Nokia, Ericsson, Siemens, Cisco, IBM, GE, Boeing and many other companies and private parties, and is being used today and will be used tomorrow. Some of these companies have failed, but Fiorina didn't kill / destroy any of them.
First, Fiorina was not the CEO or CFO of Lucent, just a president of one very successful $19B division (bigger than most S&P 500 companies and much bigger than any enterprise Donald Trump has ever ran) — see the chart of Lucent and its spinoffs under Fiorina: Lucent Technologies Inc. and spinoffs flowchart - FR, post #26, 2015 August 15, and Carly Fiorina as a boss: The disappointing truth - FR, post #28, 2015 August 16.
Second, she left Lucent for HP in 1999, at the height of Lucent's success, before dotcom bust, when Lucent and other telecom suppliers like Nortel (now bankrupt), Alcatel, Ericsson, Juniper Networks, Extreme Networks, Cisco et al (all shadows of their 1999 valuations, if still alive) were all participating in the buildout of physical infrastructure of the Internet and were all doing well, competing for the piece of the Internet pie. All have done vendor financing because it was beneficial for both parties — vendors and buyers. Fiorina didn't "destroy" Lucent anymore than she "destroyed" all these other companies (like Bell Canada's Nortel Networks which was competing with Lucent for every account and acquisition).
To understand why vendor financing is so popular — particularly in capital-intensive industries (such as technology or heavy industry or construction or medicine, media etc. etc.) — you have to understand what it actually is and how it works:
A profitable vendor has a growing pile of cash sitting in the bank at low interest rate because the copany can finance its operations and capital expenses from free cash flow. At the same time the fast growing but capital-intensive industry has many entrants that are either too young and doesn't have the best credit terms at the bank, or doesn't have the bank that understands their business well, or some stable profitable companies with a lot of debt which they can service fine, but can't tap more debt at the bank on favourable terms to expand into areas of growing business opportunity. Who'd be better to finance the purchase of the equipment than the equipment supplier who understands the business and can evaluate the opportunity risk of financing a purchase versus having this money sitting in the bank and potentially losing business to another equipment manufacturer (OEM)?
If all goes well, OEM / vendor not only makes the sale, beating the competitors, but also collects a substantial interest in excess of bank interest rates. Acting as a "banker" has additional benefits of repeat sales ("locking" the customer) because it may be difficult to switch from one manufacturer / "platform" to another. If not, the rights to equipment / collateral go back to vendor.
In simplified accounting terms it works something like this — sales are recorded, [loaned] cash and expected interest goes from the asset side of the ledger to receivables and collateral is recorded as a depreciated liability (depreciation and acceleration are different for different types of merchandise / product / equipment).
Most of you have been the "victims", er, beneficiaries of vendor financing. Examples?
Ever bought a car on credit from the dealer? You have just experienced a "vendor financing" transaction. The dealer you bought it from may also have had financing from the auto manufacturer, to fill the lot with cars to sell.
How about refrigerator or a washing maching or furniture from Sears or a specialty store, with a store credit / loan? Another "vendor financing" or maybe double, if the store had the merchandise "vendor-financed" as well.
And your smartphone that would cost $600-$700 to buy outright but you get it for less than $250 with a two year "contract" — you may not recognize it as a "vendor financing" but that's exactly what it is.
What do you think many of the leasing programs are? Yep, most leases are "vendor financing" in pretty transparent disguise.
To blame dotcom bust (and demise of the whole industry) on "vendor financing" and Fiorina is either financially idiotic or cynically political — you decide which one is which, depending on the authors.
You are absolutely correct.
The practice of vendor financing, and a more direct method called vertical integration is widely used and common.
The correct accounting methods for reporting these arrangements are regulated by FINRA and the SEC.
When a company makes a error in judgment or just puts the figure on the wrong line in the report, the regulators are sure to follow it up with fines and sanctions.
In fact these accounting methods are constantly changing to make company balance sheets more transparent, and violations are often unintentional but yes, some companies have used gaps in the regulations and exploited them. (Like Enron)
Whatever the case was with Lucent would not have been Fiorina’s responsibility due largely to her position at the time and the timeline but it’s easy for someone to make claims about a complex subject and create intentional confusion.
I think maybe some of these same people should try to work their way through a Apple balance sheet and their 10K. (talk about vertical integration!)
I am not a Carly supporter. But I resent these kinds of hit pieces.