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April 14, 1988

DEC DULY TURNS IN DULLER QUARTER, BUT ANALYSTS ARE SANGUINE FOR FINAL PERIOD

By CBR Staff Writer

DEC’s results, announced after the market closed on Tuesday, were in line with the company’s final guidance, given about 10 days ago, that a range of $2.25 to $2.30 a share was more realistic that the $2.50 to $2.60 analysts had been looking for. At $2.33 a share, they were a little better than DEC’s worst case, but there was a big fillip from a lower tax charge of 25% against 33% a year ago. DEC’s problem is that it was geared up for faster growth than it experienced, with some of its larger computers being the softest spot, and as a result, selling, general and administrative costs rose 34% because the company took on an army of new sales people last year, and research and engineering costs rose 26% as the pace of development necessarily quickens as competition intensifies. And when sales grow at only 17%, those expenses start eating into profits. DEC puts the slowdown in large system sales down to customer concerns about the economy and the usual paralysis as users wait for, and then evaluate a major new line, this time the new one-to-four-processor VAX 8700s announced last month. On the other hand, the company says that it is seeing inordinate demand at the low end and can’t keep up with demand for some workstation products. And DEC has moved quickly to stem the drain, saying that budgeted increases in expenditure had all been trimmed. After responding very negatively to DEC’s most recent warning that times were getting tighter, analysts are taking a more sanguine view now that the figures are out: the consensus is still for a 15% increase in full year per-share profits, with between $9.85 and $10 a share the target, against $8.53 a year ago. DEC’s last word on the subject, on March 18, was to say that it was comfortable with analysts’ estimates of $10 to $10.25 a share for the year (CI No 892). As DEC reported after the close – the shares were up 75 cents at $108.375 ahead of the figures – the market got no chance to give a considered view of the figures because yesterday opened with news that the February trade deficit widened to $13,830m from $12,440m in January to send the entire market into a tailspin. DEC fell $2.375 in early trading, and IBM gave back $1.25 of its gain the previous day.

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