Digital Equipment Corp’s thorough-going restructuring actions mean that its fiscal fourth quarter is no longer the strongest in the year, and turnover for the most recent period actually fell, even though the company managed a tiny increase for the full year. Gross profit margins in the most recent quarter were 32.4% of turnover, up from […]
Digital Equipment Corp’s thorough-going restructuring actions mean that its fiscal fourth quarter is no longer the strongest in the year, and turnover for the most recent period actually fell, even though the company managed a tiny increase for the full year. Gross profit margins in the most recent quarter were 32.4% of turnover, up from 29.9% a year ago, and its balance sheet strengthened in the quarter. The company was profitable for the year and solidly profitable for the quarter, but analysts had been looking for rather more. The consensus on the First Call system was $1.05 a share where DEC managed only $1.01 a share, and the turnover figure was much lower than Wall Street had expected – the company has been stuck just below the $14,000m mark for about five years now, as first Hewlett-Packard Co and then Motorola Inc sailed past it, and the likes of Apple Computer Inc and Compaq Computer Corp are now not far behind. The Maynarder ended the quarter with $1,600m in cash, up 36% from a year ago. Although turnover fell slightly in the quarter to $3,750m, after adjustments for divestments, revenue from ongoing businesses did grow 1% on the year ago figure. The changes the company has made to shift the seasonality patterns include the move to putting a larger portion of its product distribution through indirect sales channels, and changes its direct sales force measurements. DEC ended the quarter with 61,700 employees, a reduction of 16,000 positions, or 21%, from a year ago. The fourth quarter was the company’s third consecutive profitable quarter.
More work to do
It is fashionable these days to stress how much more hard work there is ahead, and We are particularly pleased with the turnaround we have engineered within our core systems products business, Robert Palmer, chairman and chief executive said: I am encouraged with our fourth quarter results and the significant progress we’ve made in a relatively short time. However, we still have more work to do. Sales of Alpha RISC-based systems grew 32% in the fourth quarter compared with a year earlier, driven by strong demand for servers, but given the number of VAXes out there that should be being upgraded to Alphas, the rate of growth is still much too stately. Product business was down 4% in the quarter, to $2,130m, but adjusted for divestments, product revenues from ongoing businesses were up 5%. Services – the white hope at old time companies like DEC these days, were down slightly, to $1,610m from $1,690m – and even the personal computer business, with those vestigial margins that can’t be helping DEC rebuild its balance sheet very much, turned into a disappointment in the fourth quarter, and turnover growth moderated after 12 quarters of explosive market share gains. With our Digital PC business at an annual run rate of $2,500m, we expect both continued progress and to capture additional market share in the 1996 fiscal year, Palmer said. The weakness of the dollar overseas had a three-percentage-point favourable impact on its fourth quarter revenues compared with the third quarter, but non-dollar-denominated costs and competitive responses substantially offset the positive impact. It also continued to improve asset management, and for the second consecutive quarter generated positive cash flow from operations.