Digital Equipment Corp chief executive Robert Palmer duly held his get-together with analysts in New York on Wednesday, saying that he expects Digital to boost profit margins and revenue growth rates to around industry standards over the next several years: the company has been stuck at $14,000m annual sales or a little below for about […]
Digital Equipment Corp chief executive Robert Palmer duly held his get-together with analysts in New York on Wednesday, saying that he expects Digital to boost profit margins and revenue growth rates to around industry standards over the next several years: the company has been stuck at $14,000m annual sales or a little below for about five years now and companies such as Hewlett-Packard Co and Motorola Inc have stormed past it – Hewlett is now over twice the size of DEC while Motorola is close to it. Palmer expects profit margins to grow to around 7% from the current 5%, attendees told Reuters, adding that it also sees revenue growth of about 9%. Referring to DEC’s plans to improve revenue growth, Soundview Financial Corp analyst Gary Helmig, who attended the meeting, noted that a 9% annual growth rate would put the company in line with the overall industry pace although far behind the likes of Hewlett or Compaq Computer Corp, and well ahead of the low or negative rates it has seen in recent years. For the year ended June 30, the company had annual growth of about 2.7%, Helmig said, adding that he is projecting a 6.7% rate for the year ending June 1996. The company declines to break down revenues by business units, but according to Helmig’s estimates, the $13,800m in revenues for the year to June 30 included just under $8,000m from hardware and software products, with the other $6,000m or so derived from consulting services and systems integration. When asked for guidance on earnings estimates for the first quarter ending in September, Palmer said DEC had recently changed to indirect distribution methods from a direct sales approach, making comparisons difficult. As a result, the chief executive said he wouldn’t really have a sense of how the company was performing until a few weeks after the period was over.
They will not lose money
However, Helwig told the news wire The net results of the meeting (were) that (company officials) are comfortable that the guidance they gave at start of the quarter should play out, which would suggest they will not lose money this quarter. Current analysts’ estimates for the first quarter vary widely, from break-even to 58 cents per share, with the consensus at around the 22 cents per share mark, although there is persistent gossip that the company could report a loss for the first quarter, which is traditionally a slow period for the company and the industry in general, because much of continental Europe still harks back to a more leisured age and shuts down for the summer – hardly a way to remain competitive with lean and hungry economies like those of South Korea, Malaysia and Taiwan. A spokesman for the company confirmed plans to form the new business unit, which will develop software to tie together multiple networks across wide areas, and also confirmed that DEC plans to align its other software operations better into existing product groups. DEC is seeking a business leader to run the new business, but according to Helmig, the people running DEC have all the technologists they need. Helmig said officials left much unclear about the new unit, stressing it is a work-in-progress. They don’t how much revenue its going to generate, he said. Regarding its semiconductor operations, Helmig said that DEC officials declined to name any possible partner.