How are the mighty fallen, and competitors are decidedly unfeeling about the deepening plight of Digital Equipment Corp: Scott McNealy’s response to the company’s latest terrible figures last week was to say the company didn’t matter any more, and Siemens Nixdorf Informationssysteme AG in the UK seems to be convinced that the company is about to, or has already, filed for protection from its creditors. That is absurd: DEC may be in deep trouble on the trading front, but its financial underpinnings, although deteriorating: indeed, although Moody’s Investors Service Inc just cut DEC’s credit ratings (see opposite), it has left them just in the investment grade that means that trusts and pension funds can safely hold them: the ratings agencies are far more rigorous than any other body in examining companies’ fundamentals, and if there were any whiff of real trouble, far from a Baa, you’d be looking at a C rating. Nothing can ever be ruled out entirely, but any filing of the kind Nixdorf envisages would be a frivolous misuse indeed an abuse – of the US Federal insolvency code – even worse than airlines making filings in order to see off stroppy trades unions by rendering their members’ contracts of employment void. Sun chief Scott McNealy’s cruel verdict is that he personally can’t see how they can pull out of the dive, but adds they don’t matter any more anyway – competitors now say they never see DEC when tendering for major contracts these days. DEC chief executive Bob Palmer was in an all-day board meeting on Thursday explaining how he intends to extricate DEC from financial crisis and what exactly had happened. This was after all the second consecutive quarter that DEC had surprised everyone, itself included, by making serious losses. Even Palmer declared: I didn’t expect this mess in revenues and I didn’t expect this outcome; I can’t imagine the board will be pleased with that. The mood inside the once-proud firm is now said to be glum.
Not done a good job forecasting
DEC has only had one profitable quarter since the fourth quarter of fiscal 1991. Last quarter, DEC’s product revenues of $1,750m were up by 5% on the previous quarter, but down 1.1% on a year ago. The plunge in services, down 11% to $1,500m, not only surprised McNealy, but is unfortunately something not recoverable. Alpha sales did rise 66%, accounting for almost half of total systems turnover and for two quarters now, DEC says it has been unable to deliver on orders placed. In the fiscal second quarter, officials said it simply got the product mix wrong and was short on parts. And last quarter, the company was apparently unable to meet demand for personal computers, Alpha workstations and storage products. Palmer complained the company has not done a good job forecasting revenue from the field. I thought we were fixing that but clearly we were not. Meanwhile, Wall Street is perplexed that DEC hasn’t reduced staff numbers in line with its size, estimating that the firm needs to lose an additional 20,000 people, despite the pain this would cause at the bottom line; even if it lays off another 6,000 or so personnel, losses seem likely to continue into the first half of next year. The first outcome of the board meeting appears to be the ousting of newest top staffer, and current number two at DEC, the ex-IBMer Ed Lucente.
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