Digital Equipment Corp joined the crowd of computer and microelectronics embarrassing the analysts this reporting season, coming in with a loss per share of $0.48 where the consensus average was for only 14 cents – and the company is back in decline, with revenue off a wrenching 11% at $2.91bn. Gross profit margins fell to 31.3% of revenue, down from 32.2% a year ago, and it begins to look as if DEC’s recovery will follow the Unisys Corp model rather than the IBM Corp model – finding that each round of cuts is only enough to get it back to break even for two or three quarters before another slump back into losses forces yet more cuts. DEC said it continues to work on improving its sales organization, one of the factors that led to losses in is European business – although most companies are finding the continental European economy pretty tough going just now. We are concentrating on substantive, permanent improvement, not quick fixes, insisted chief executive Robert Palmer: the turnaround that we continue to manage is challenging and extensive in scope, he added, and, ignoring the fact that the company now is a shadow of what it was then in terms of products and scope, Despite progress we have achieved in the last two ye ars, these results simply are not where they should be, he declared. DEC said it needed to implement a new sales model that would eventually increase the extent and effectiveness of its account coverage, but because of the changes, its first quarter got off to an even more sluggish start. Product revenues for the latest first quarter were $1,522m, a decline of 16.3%. And sales of the Alpha system seem to have stagnated already, rising just 4% from a year ago.

Distracted by the management changes

The biggest hit was taken on high-end Alpha 8000 sales, which are complex and, as Palmer said require the full attention of the sales force, who were distracted by the management changes. Lower-end Alpha sales were good, he said. We expect overall growth to return to more normal levels, said Palmer, though not, apparently, to the 30% per year growth levels achieved in the past. Hasn’t DEC compromised its NT on Alpha products by also offering Pentium Pro systems running NT? We’re trying not to make it a theological issue so we can offer our customers a wider choice of performance, said Palmer. The sales force now have the same incentives to sell either. Services business slipped 4.8% to $1,380m, and service gross margins were 31.5%, down from 33.8%, but product gross profits were 31.1% versus 30.9%, but that is no doubt down to the cutback in marketing of very low margin personal computers. Costs at least appear to be under control, and chief financial officer Vincent Mullarkey said the company made solid progress in the management of gross margins and operating expenses, with total operating expenses essentially unchanged at $900m in the quarter – but as that is on reduced sales, it is still a problem. Performance of its personal computer business continued to improve and the unit made good progress toward its near-term business objectives, it said – but there was no word on how the one new business, the AltaVista line of Internet products, was faring. Despite its seemingly never-ending fire-sale of core assets, Palmer disagreed that DEC was being stripped of its assets for the sake of cash. None of the businesses we’ve sold off have been strategic, he said. Rdb was sold to Oracle to reduce channel conflicts with a major partner, and we are now the number two platform for Oracle. And DEC sold its disk business to Quantum Corp but retained the stategic part, its Systems Storage Architecture. So why the $2bn in cash left in its balance sheet? We’ve funded the restructuring to date and are paying for on-going restructuring he said, adding that DEC would also use the money to stabilize the number of shares out there in the market – in other words, it wants to buy more in, and for investment in new market areas. DEC ended the quarter with 57,000 employees, down 4,500 from the year-ago period, but it is aiming for 53,000.