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April 18, 1994

DEC HAS STUNNING $185m LOSS AS SERVICES SLIP, ALPHA DEMAND EXCEEDS SUPPLY

By CBR Staff Writer

Shares in Digital Equipment Corp were down $1.625 at $27.50 at the opening on Friday and soon lost further ground to trade at $24 even after the company reported a third quarter loss of $1.34 a share compared with $0.23 loss last time and substantially worse than expected – some analysts had hoped for something close to breakeven. The figures show the improvements seen in the first half of the fiscal year going into reverse, and seem to bode ill for IBM Corp’s first quarter, since IBM has many of the problems that face DEC. DEC itself was shocked enough by the figures to say that it will now consider still further restructuring to restore it to profitability. The company said that its senior managers have been instructed to reduce their spending sharply, conserve cash and accelerate the on-going restructuring. We need to achieve competitive cost structure as quickly as possible, president and chief executive Robert Palmer said. A low-light of the report was that service business slumped by a shocking 11% to $1,500m in the third quarter: the company blamed increasing product reliability and erosion of its systems-installed base, saying these put pressure on service revenues and margins. Translated into plain language, that means that many of DEC’s VAX users are switching their machines off and not replacing them with Alpha AXP – or with anything that comes from DEC. Product sales were off marginally for the quarter at $1,750m from $1,770m a year ago, a 1.1% fall. The other disconcerting news from a period that the company described as disappointing is that while growth in new products is beginning to overtake declines in other products, the company was unable to meet customer demand for personal computers, Alpha AXP workstations and some storage products, a damning admission with a vital new generation of machines with radically different architecture.

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