Hopes that Digital Equipment Corp might avoid a slide back into losses this quarter – its fiscal first – after making a profit last quarter, were dashed when the company met analysts this week. The company was sufficiently downbeat that the shares slid $1.875 to $38.125, and had already been off $1.625 the previous day. DEC’s primary thrust was to say that it was stepping up its worldwide sales and marketing efforts, specifically targeting increased penetration of small and medium-sized businesses as the major area for growth. We are establishing a focus on small and medium-sized enterprises that do not have a Digital presence. Our plan is to increase penetration in this sector, said IBM Corp alumnus Ed Lucente, now DEC’s vice-president of worldwide sales and marketing. If we could get the same sort of presence in this area as we have in larger systems, we could possibly double our business in the next three years, he suggested, stressing that this was not a forecast. He also warned that DEC did not expect to see any advances in this area until the second half of the current fiscal year to June 30 1994. Lucente said that computer hardware revenue from small and medium businesses in the US alone totalled around $100m a year and the low end of the market was the fastest-growing sector yet DEC currently had only about 1% of the market. If we were best in class it would have the effect of doubling our revenue, Lucente added. Over the past 18 months, the company’s strategy has been to use its own technology and competitive pricing to become one of the fastest growing makers of personal computers. We’ve just broken into the top 10 personal computer suppliers. We doubled our sales last year and we hope to double them again this year, Lucente said.
A long process
Talking to Dow Jones & Co after the meeting, analysts thought they had come away with a with a pretty clear picture. The bottom-line conclusion that I drew is that, notwithstanding all of the improvements that this company has made already, this is probably a long process, said Laura Conigliaro, a Prudential Securities analyst who tracks the company. Adams Harkness & Hill analyst John Adams said some Digital bulls might have entered the presentation looking for a piece of positive news on the short term. It didn’t materialise. There certainly was a sense of anticipation about the meetings, Adams says. It was their opportunity to say ‘we’re gaining market share here’ or ‘something’s a little bit better than we thought’. Ms Conigliaro says DEC comments made it clear that a loss is in the cards for the fiscal first quarter ending this month. If you want to train your sights on the short term, if there were any hopes that the company could break even this quarter, throw that aside, she said. She didn’t alter her first-quarter estimate of a loss of 27 cents ashare. Market players told the Dow that First Boston Corp analyst Curt Rohrman widened his first-quarter loss estimate following the presentation. In a recent survey of 13 analysts by Zacks Investment Research, the average forecast for Digital’s first quarter was a loss of 11 cents. Individual estimates ranged from a profit of 43 cents to a loss of 35 cents, and some see good mid-term value in the share price while it remains below $40.
