The jury has been out for about 15 months on whether the Alpha RISC machines would represent a dramatic leap forward for Digital Equipment Corp or would simply represent an awkward transition from the VAX architecture – but things are beginning to look ominous: the company’s first quarter loss of $0.62 a share – and that after an exceptional gain of $0.14 a share, was worse than analysts had expected and a new round of downgradings was being made on Wall Street in the wake of the figures. The worst aspect of the figures were that turnover plunged 9%: at this stage in a completely new product line that should have been met by pent-up demand from the VAX base, turnover should have risen significantly: either DEC can’t get the Alpha AXP machines out the door fast enough, or the demand is simply not there. I think a lot of people are going to be slashing their estimates this morning, PaineWebber analyst Stephen Smith told Reuter, adding that the most current consensus on First Call was a loss of $0.34 a share. Alpha is getting off to a slow start, Smith added. It’s not becoming significant in terms of revenue. They are going to have to price it aggressively in order to get attention. International revenues are also a concern, he added. DEC said weakness in Europe, especially in Germany and Italy, was a primary contributor to its fall in turnover. Even the US market, which is – if sluggishly – out of recession, showed a small decline. Product sales overall were off 12% at $1,557m, and even services were down nearly 6% at $1,458m. Commenting on the figures, the company said that its focus for fiscal 1994 remains unchanged and it is committed to improving profitability while growing its Alpha AXP business. It also noted that product gross margins declined a whopping five points in the first quarter from a year earlier – something that can only be taken care of with fast-growing sales, not declining ones. DEC blamed the fall in margins on the revenue decline and a continued shift to lower-price, lower-margin products. The company also blamed negative effects of currency fluctations for some of the woe. The one bright spot was Asia, where operations continued to show good growth – but not enough to offset declines in other geographical areas. DEC said the effects of its restructuring programme are on schedule and, as a result, research and engineering spending declined 22% or $90.7m in the first quarter from a year earlier. Sales, general and administrative expenditure was reduced by a healthy 23% or $258.9m. The company did have double-digit growth in both revenues and units in personal computers and Unix workstations in the quarter, but both come from a low base.Gross margins in the service business improved slightly compared with the year-ago first quarter.
