Digital Equipment Corp is presenting amateur sleuths with a classic case of the dog that didn’t bark. Why should an integrated computer manufacturing and marketing company that professes to want to remain just that sell its disk drive manufacturing business and retain only the disk subsystems integration business? In an age when database management systems are a sine qua non for any computer system above the desktop, why should DEC want to sell its own installed base of databases to the market leader, Oracle Corp, thereby making Oracle even stronger, especially when such a move opens up the likelihood that many of those DEC Rdb users will regard a conversion to Oracle7 not only as a liberation from a dying database management system, but a liberation from the company that sold it to them, facilitating a move to Oracle on market leader Hewlett-Packard Co’s servers?
Wounding great loss
Why should DEC even consider selling a really interesting acquisition, made only two years ago, Basys Automation Systems Ltd, the newsroom automation company, just at a time when DEC’s own video-on-demand servers, which sell into a closely related market that will become even closer over the next few years, are beginning to get widely noticed? At a time when demand for computer power in telephone and cable companies is soaring, why consider selling an embryonic fault-tolerant systems business to Sequoia Systems Inc when the one essential for selling to phone companies is fault-tolerant Unix? Why should DEC have ever considered selling large parts of its computer services business to Computer Sciences Corp at a time when it says computer services are strategic to its future? Why should DEC sell its 8.9% of Ing C Olivetti & Co SpA shares at a thumping, winding, wounding great loss at a time when Olivetti has just won the licence to set up a cellular telephone network in Italy, which suggests that with all the excitement that surrounds cellular companies once they begin to get up and running, Olivetti shares can be expected to soar over the next two or three years, enabling DEC at least to have washed its face on the costly adventure if it hung on for a year or two? There is only one possible conclusion to be drawn, and that is that DEC is not going through its portfolio of assets and deciding which are unimportant to its future before putting them on the block, it is rather casting desperately around seeking anything that can either easily be turned into cash – any cash, however inadequate, and selling it in desperation, or, in the case of the database and fault-tolerant businesses, selling simply because they are wasting assets that will soon be worthless if DEC doesn’t invest in development of a new release of Rdb or in bringing fault-tolerant systems to market. So to the dog that didn’t bark.
Disaster in the making
All those moves look like starkly uncompromsing signals that here we have a company in so much trouble that it will not survive in any form at all unless it turns every single saleable asset into cash, and that the alternative to selling much of the family silver is a filing for protection from its creditors which would include countless employees it needs to get off the payroll. Another Wang Laboratories Inc in other words. Yet Wall Street has not signalled that here is a disaster in the making: on the contrary, it is hailing the sales as signs that here is a company whose management is getting to grips with its problems in a vigorous and efficient manner. Just what world do those guys live in? If you were a long-time VAX user and saw DEC selling such crucial core assets, would you be inclined to entrust your company’s future to one of the new VAX models, let alone risk a conversion to Alpha AXP? If you did, you’d be widely seen among your peers as a reckless gambler and would be very lucky to hang on to your job. A few short years ago, people were beginning to turn the old no-one ever got fired by buying IBM saw into it is irresponsible to ignore the Digital alternative. DEC had a triple-A credit rating that it didn’t
need, because under Ken Olsen’s frugal stewardship, it never borrowed any money. Today, it is loaded down with borrowings, has seen its credit ratings plunge its debt towards the junk bond bargain basement, and is seen as a firm from which no prudent person would buy if he did not have a fall-back strategy to cover him if the grand turnaround being engineered by Robert Palmer didn’t work. Sad to say, the whole ball of twine is unravelling as the perception that Alpha AXP is not going to make it begins to turn off even those VAX users that fully intended to make the transition. And a whole string of important companies are hurt by the perception, the pall, of abject failure now hanging over Maynard. Cray Research Inc insists that the Alpha RISC is in no way crucial to the design of its massively parallel T3D, and must be looking to move quickly to another chip: sad to say, DEC never got that major second source that could have maintained confidence in the chip even as it waned in the designer – and crucially, it tried and failed to reach agreement with the Taiwanese, who are now betting on PowerPC, which is the computing equivalent of losing a six-pointer Premier League soccer match. (For the uninitiated, a six-pointer is a match against your nearest rival, either for the championship or relegation, where if you win, you not only take three points, you also deprive said rival of three points). Jacques Stern’s Stern Computing Systems SA, Encore Computer Corp and Ing C Olivetti & Co SpA – which looks as if it is on the way out of the computer systems business, certainly above the desktop and the briefcase, preferring the greener pastures of telecommunications – are all in the same leaky boat as Cray.
Nail in the coffin
Even mighty Microsoft Corp is not untouched by the unfolding tragedy: the close association with and enthusiastic support of DEC for Windows NT looks likely to put the last nail in the coffin of that unhappy, misbegotten operating system. Would Robert Palmer be selling all these attractive businesses and assets unless he knew something about the real state of and prospects for DEC that the rest of us don’t know? Which raises another uncomfortable thought: the declines of IBM and DEC have progressed so closely in lock-step that the plight of DEC spurs the suspicion that things may well by far worse at IBM than anyone currently recognises: in the kingdom of the blind, the one-eyed man is king, and Louis Gerstner keeps trying to play down suggestions that the struggle to turn IBM around is half won, or that things can get easier from here on in. He regularly makes it clear that the gargantuan task is only just begun, and this is no time for surviving IBMers to rest on their laurels. Does he know something about the state of IBM that the rest of us – above all folk on Wall Street – don’t know?
