Digital: Happy days are near again

The days of the incredible shrinking DEC may be over.Buoyed by solid margins and a profit for the year, Digital Equipment Corp.

The days of the incredible shrinking DEC may be over.

Buoyed by solid margins and a profit for the year, Digital Equipment Corp. officials puffed out their chests and confidently predicted that the company's days of falling revenues were over.

Citing growth in its three core areas, Unix, Windows NT and the Internet, CEO Robert Palmer told media and analysts that this quarter's results "represent a strong foundation for growth in 1998 and beyond."

"Our business model is clearly back on track," added Vin Mullarkey, Digital's chief financial officer.

Wall Street gave tentative agreement, sending Digital's stock up $2.13 to $42.13 in early trading. At 11:04 a.m. EDT, the stock was at $41.38, a 4 percent increase over its starting price.

"It was OK, not great,'' said Steve Milunovich, an analyst at Morgan Stanley in New York. "Revenues are a little light, margins were a little better.''

Digital, based in Maynard, Mass., posted numbers that were better than Wall Street was expecting, with profits of $123.9 million on sales of $3.5 billion, compared to last year's $432.8 million loss on sales of $3.7 billion. Those numbers included a one-time charge of $492 million. Even without the charge, Mullarkey said that Digital's numbers were substantially better than in the year-ago period.

Mullarkey told press and analysts during a conference call to discuss the company's earnings that "it's my hope that we return to growth this quarter. Our plans clearly call for growth this year."

Mullarkey cited "very significant unit growth beginning to develop" across most of Digital's product lines, spearheaded by Alpha-based products. He said Alpha revenues were up 15 percent, and unit growth was up about 30 percent.

Palmer was terse in his response to questions about Digital's legal issues with Intel Corp. He declined to elaborate on a legal filing yesterday that said Intel had "monopoly power."

"What we observed in our document is undeniable, that Intel has a huge market share of the microprocessor [business]," said Palmer. "It's well-known to everybody. We wouldn't comment on it further than that."

He noted that Digital uses processors from Advanced Micro Devices Inc. in one product line, but that Digital could get Intel chips from sources other than Intel, if need be.

For the year, Digital earned $140.9 million, or 68 cents per share, on sales of $13 billion. A year earlier, it lost $111.8 million, or 97 cents per share, on sales of $14.6 billion.

A revenue drop of $1.6 billion, particularly in the context of its rivals' double digit growth, is not a good thing, according to Terry Shannon, editor of Shannon Knows DEC, an Ashland, Mass., newsletter. Shannon noted that it did appear that Digital's decline in sales, much of which was caused by shedding business units, was arrested.

Shannon also noted that while people were no longer loudly questioning Digital's survival, the company is in a market where the rising tide is lifting all boats, but it is still finding itself bailing.

If Palmer and Mullarkey are correct, the company is finding wind in its sales, full speed ahead.

Material from Reuters was used in this report.


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