Congratulations to Robert Palmer on his creation as the first ever chairman of Digital Equipment Corp, which he adds to his titles of president and chief executive. Not a man to set much store by appearances and glory, founder Ken Olsen was always content to hold only the latter two titles, but Palmer deserves his accolade for his triumph in getting the company back into the black. He has triumphantly delivered what the board was asking for and Wall Street and the shareholders are delighted.
Easy headlines
The company may still be struggling in its core business but it is also doing extremely well in personal computers – not quite as well as Hewlett-Packard Co perhaps, but many times better than DEC has ever done before. That and the stable finances are the success story Palmer can bask in: how much he will be able to hand on to his successor is another matter. The worry is that when you look beyond the headline figures and the easy headlines they generate, the picture looks far less rosy. DEC has cut costs by firing people in enormous numbers and getting much more of its work done by third parties. That approach is fine when the work being done by third parties is simply marketing. Trouble is, DEC is handing off most of its development expenditure to third parties, and once a company allows a critical mass of development work out of its own hands, it ceases to have any importance to its customers, and people begin to ask, as the child did about the famous politician, what is that company for? Selling the disk manufacturing business was probably necessary, given the dire straits that DEC was in: not only did it bring in much-needed hard cash, it eliminated the need for DEC to invest money in development of new disk products – even if when DEC was last in the black before the fall, people were saying it should buy a disk business to bolster its own operation. Selling the Scottish chip plant to Motorola Inc was probably equally necessary: it again brought in hard cash, even if with the insatiable demand for chips, any healthy company would have been able to hold on to it and run it at a profit. But sale of the Rdb relational database to Oracle Corp and the decision to lay the foundations of a migration of its VMS user base to Microsoft Corp’s Windows NT represents rather more than simply selling assets that are saleable: it begins to strip the company of its entire raison d’etre. The database was clearly sold because DEC did not want to make the investment needed to prevent it becoming a wasting asset. The decision to begin to put OpenVMS on a care-and-maintenance basis rather than follow the Hewlett-Packard model and gradually bringing it closer to Digital Unix (itself a product that DEC did not develop in-house but which came in large part from the Open Software Foundation) smacks of a counsel of complete despair.
Painfully thin
It hands off to Microsoft development of DEC’s future operating software – and what future does a computer company have if it lets go control of its operating software, the very soul of a computer-manufacturing company? A whole string of little businesses – financial systems, newsroom automation systems, things like that, which any successful large company would want to hang on to and grow, have been sold, simply, it seems, because DEC needed the cash and did not want to make the investment that would enable them to grow. The company has reduced its major investment targets to little more than keeping the Alpha RISC ahead of the competition in terms of performance – essential but far from sufficient for survival, and designing machines around it, and designing personal computers. The media server and the database server venture with Oracle look promising, but they are painfully thin ventures on which to build the entire future of the company. For the rest, the decision to allow VMS to transform itself, chameleon-like, into Windows NT looks like an extremely risky decision: some VAX users will find the idea of migrating over time to Redmond and all its work
s congenial enough, many will not, and DEC will find it a devil of a task to try to convince them that they should not look outside the company for their future. As for the personal computer business, a company as successful as Hewlett-Packard can afford to invest to become a major force in that commodity business; it is far less clear that a company in such dire straits as DEC can afford it. Margins on personal computers are painfully thin and big companies like IBM Corp are finding it extraordinarily difficult to translate large volumes of personal computer sales into anything at all that feeds through to the bottom line, but it is becoming harder and harder to see where the fat margins that will compensate are to come from within DEC.
Dismal trail
The conclusion that has to be drawn from all the evidence is that either DEC is still in far worse trouble than anyone outside the company ever imagined, far worse trouble than anyone inside dares to admit publicly, or that the company is simply being cynically run for cash, as if its business were nothing more high-tech than cigarettes or a cookies. Wall Street does not seem to have noticed, or does not seem to mind, and it is quite clear that Palmer is running the company under clear orders from the board – nasty leaks about how little time he had been given to turn the company around filtered out last year, making it plain that he found himself with little choice but to follow the slash and burn policies that are so evident. So it will be deeply unjust if when what has become of DEC is made clear, Palmer gets saddled with all the blame. But it seems amazing that a $14,000m-a-year computer company can be accorded so little value that it be allowed to travel down the same dismal trail that was blazed by the likes of Prime Computer Inc and Control Data Corp. Companies as big as DEC don’t simply disappear: bits of them are still able to survive, and may even ultimately come to thrive, and they end up as small as Wang Laboratories Inc.
