ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Wednesday, July 3, 1996 TAG: 9607030037
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
DATELINE: BOSTON
SOURCE: Associated Press
Digital Equipment Corp., hurt by high costs and a stumble in personal computers, said Tuesday it will cut 7,000 of its 60,900 jobs and make less money than investors had hoped.
The announcement came a day after No. 2 executive Enrico Pesatori left the company, citing the disappointing performance in PCs.
Digital said its profit for the quarter that just finished will be below Wall Street forecasts of $1.06 per share.
The company's stock closed down $5.50 at $40.371/2, a 12 percent drop, on the New York Stock Exchange. Shares in rival computer makers, notably Hewlett-Packard Co. and Sun Microsystems Inc., fell noticeably. IBM was also down, though not sharply.
Digital executives said the restructuring would cost $475 million and be charged against results for its fiscal fourth quarter, which ended June 29. They said it should restore Digital to health by the last three months of this year, the second quarter of its fiscal 1997.
Most of the jobs will be eliminated through layoffs, and half will involve support personnel in marketing, Digital Chairman Robert Palmer said. The company's marketing force has already started to change from geographic-focused to industry-focused representatives, something other big computer makers have also done.
``In virtually every unit of the company, there's an opportunity to improve our efficiency,'' Palmer said.
The stumble and restructuring follows six straight profitable quarters at Digital, which undertook a much bigger restructuring in 1994. Palmer said the plan continued the ``transformation'' begun when he became chief executive in 1992.
``We believe we are mostly through these large reductions,'' he said during a telephone news conference.
Digital lost $5 billion during the first half of the 1990s as it tried to readjust its product line and staffing to reduced demand for minicomputers and higher demand for smaller PCs and related equipment.
The Maynard-based company has gone from 115,100 employees in mid-1991 to 60,900 now. In the United States, 27,390 people work for the company, 12,125 of those in Massachusetts.
``This is a complicated and lengthy process,'' Palmer said. ``Digital did not get into trouble in a short time, and we will not completely recover in a short time.''
Digital announced the changes a day after the departure of Pesatori, who joined the company in 1993 and had been vice president and general manager of its core computer systems business.
While Palmer said Pesatori had decided to leave himself, his departure was tied directly to the problems in the personal computer business.
``It's clear that Enrico's responsible, or has been, for our PC business, and it's clear that we were disappointed ... with the results,'' Palmer said.
He blamed its PC problems on poor forecasting. Digital's PC inventory is greater than most of its rivals, a detriment when the company tries to bring out new models that contain more advanced components.
``This is clearly a disaster,'' said David Wu, an analyst with The Chicago Corp. ``The second-highest ranking officer in the company got canned. So if this thing doesn't turn around, the CEO is the next to go.''
Though historically known for its powerhouse Vax minicomputers, Digital now does an equal amount of business in Intel-based PCs as it does in traditional products. Both account for about 17 percent of overall revenue.
It has been able to take advantage of its relationships with businesses and government agencies that have its bigger machines to sell PCs. But the PC business never has been profitable for Digital, analysts say.
``DEC doesn't quite have the name of other companies and clearly hasn't been holding its own in the business PC world,'' said George Elling of Merrill Lynch. ``This was the year it was supposed to turn around, and it hasn't.''
Palmer said the company's business in ``servers,'' which control and manipulate data for networks of PCs, was doing well. Because those machines yield more profit, he said Digital would concentrate on them more than desktop PCs in the future.
Digital earlier this year said it would withdraw from consumer sales of PCs, which typically produce the least profit and have high support costs.
Weak European sales and a strong dollar have also contributed to Digital's financial trouble. While the company expected a 5 percent increase in European revenues in the fourth-quarter, executives said they will fall $150 million short of that.
The company's overall revenue for the period will be about $4 billion.
LENGTH: Medium: 87 lines ILLUSTRATION: PHOTO: AP. Some of these workers leaving Digital headquartersby CNBmay not have jobs much longer. color. Graphic: Chart by AP. color.