The market remains easily pleased, and shares in Digital Equipment Corp rose in pre-open US trading yesterday after it reported second quarter profits slightly better than expected – 15 cents a share, plunging from 91 cents, against a best Wall Street guesstimate of 10 cents. The shares added $2.50 to $26.625 but the real killer was sales for the quarter, which were off a whopping 15%, underlining what a false dawn fisal 1996 represented – for the year to June, sales were back to their best ever of over $14bn, but it looks as if they will be closer to $12bn this fiscal year unless the second half really kicks into gear. Chairman Robert Palmer commented that he is satisfied with the company’s progress so far, even if, from being the US industry’s number two, it has now been passed by the likes of Hewlett-Packard Co, Compaq Computer Corp and Intel Corp. I am satisfied with the progress the company demonstrated in the second quarter compared with our first quarter results, he said, adding that the company’s goal is continuous improvement – again, hardly what the most recent quarter demonstrates given that the sales decline accelerated considerably from that in the fiscal first quarter. We needed to address a number of issues over the past few quarters to position the company for long-term growth. We are doing so, Palmer said. Digital’s long-term goal is to generate revenue growth and profit levels which put us among the industry leaders. DEC ended the second quarter with about 55,900 employees, down 1,100 from the prior quarter.
Put the price up
But in the first news to come out of the conference call with analysts, Palmer made the astonishing claim that total sales of Alpha systems grew by only 1% year over-year in the second quarter due to supply contraints – which seems a little odd given that the company has just slashed prices on the things – normally, if there is a shortage of something, people are prepared to pay a premium, so you put the price up. He also blamed slow growth in Europe. I view the slowdown in Alpha’s growth as a short-term issue that will be resolved as we further strengthen our sales and marketing to bring our supply in line with strong server demand, Palmer said. Alpha system revenues did rise 33% from the weak first quarter, he said, but the company was back blaming its price cuts for driving second quarter profits down nearly 79% from a year ago. Within the figures, product revenue slumped to $1.844bn from $2.347bn the second quarter of last year, but it was up 21% from the truly rotten first quarter of fiscal 1997. But even the services business on which so many hopes are pinned is not growing: it fell to $1.513bn from $1.604bn, a $6.2% decline on the figure a year ago, albeit up 9% from the stunningly awful first quarter. Palmer said DEC’s Personal Computer Business Unit generated a profit for the quarter, and met all of its operating objectives – but the company has scaled that side of its business right down. On AltaVista, Our Internet products are being very well received in the marketplace, Palmer also commented.