Digital Equipment Corp’s fiscal second quarter figures were truly horrible, with a loss no better than this time last year on what are beginning to look like free-fall sales. Judgement on whether the transition from VAX to Alpha is going to be successful cannot be suspended any longer, and it has to be acknowledged that DEC is in deep trouble. The losses can be reversed: the real shocker is the 11.8% plunge in turnover for the quarter, which if annualised means that the $14,000m company we have been talking about for the past four years is now only a $13,000m company. Wall Street was stunned by the figures, which wrong-footed all the analysts: the loss per share came out at 53 cents, and that compares with a worst forecast of a loss of just 10 cents, and a mean forecast that came out to a profit of 11 cents – one poor sap had actually been going for 35 cents profit. It’s very bad, said First Boston analyst Curt Rohrman, a First Boston analyst. Revenues were ugly and margins were ugly. He can say that again, and DEC itself can deliver little cheer going forward: it says that it remains cautious about its outlook for the second half of fiscal 1994, citing the economic uncertainty – which seems to be disastrous for some companies, no problem for others, notably the company that has sailed past DEC to become US number two computer company, Hewlett-Packard Co – product transitions and competitive pressures. The problem with that product transitions excuse is that DEC went through one of those in 1985, when it finally replaced the then antique VAX-11/780 with the 8600 and quickly thereafter the 8650. Pent-up demand was such that almost the entire VAX-11 base converted in a year or so, DEC’s sales and profits soared, and the company stormed forward to the end of the decade, only hitting the buffers with the arrival of the 1990s. The same need for more power now exists in the VAX base: it’s simply that those users are reviewing their options and are emphatically declining to take a risk with the Alpha RISC.
Decked with superlatives
The company said the sales plunge in the second quarter was primarily due to continued decreases in sales of its VAX systems, associated software and services – but if those users are not going to convert to Alpha, DEC is sunk. The personal computer business continued to double in unit volume, year over year, and showed strong double-digit revenue growth – but how much money are diversified computer manufacturers making out of personal computers? On the Alpha AXP, the company says that the workstation business continued to show good growth in the quarter, but at this stage in the quarter, growth in that business should be decked with superlatives, not simply also and good. Foreign currency had a negative effect in the quarter, similar to the first quarter and business in the major economies of Europe and the US remained weak, while it experienced growth in Asia-Pacific and Latin America. Margins declined compared with the same quarter last year as the mix continued to shift to lower-margin, lower-cost products, such as personal computers and its Alpha AXP workstations.We expect continued product margin pressure and are adjusting our business unit strategies and cost structure accordingly said chief financial officer William Steul. Cash at quarter-end was $1.100m.
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