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Digital revenue down

The company reports a drop in revenue due to a strong U.S. dollar, but a net income of $307 million, compared to $51 million a year ago.

Digital Equipment today reported a drop in revenue due to a strong U.S. dollar.

Revenue for the quarter was $3.19 billion, down 4 percent from the $3.31 billion reported in the corresponding quarter a year ago.

Digital reported a net income of $307 million, or $1.99 per share on a diluted basis, for its third quarter which ended March 28, compared with $51 million, or 27 cents per common share on a diluted basis, for the same period last year.

The quarterly results include a $201 million after tax gain from the sale of the company's network products assets to Cabletron Systems.

The maker of personal computers and workstations said See related story: 
Digital falling off desktop? that a strong U.S. dollar had a significant impact on revenue growth. In constant currency, Digital said that revenue growth rate would have been about seven points higher than reported results. Total operating revenue was up 3 percent in constant currency.

Product revenue dropped to $1.68 billion, from $1.84 billion a year ago, while service revenue grew to $1.51 billion, compared with the $1.48 billion reported in last year's third quarter. DEC said that its service revenue was up 9 percent in constant currency due to gains in professional services offerings.

In the Americas, revenue was up 8 percent in constant currency while in Europe, revenue was up 2 percent in constant currency. Asia revenues declined on a year-over-year basis, consistent with the weak economic pattern established in mid-1997. "We experienced improvement in nearly all operating areas," said Robert Palmer, Digital?s chairman of the board. "We achieved this in an environment of continued problems in the Asian economy, a strong U.S. dollar worldwide, and an understandable, temporary hesitation by customers after our agreement to merge with Compaq Computer was announced."

Digital announced a merger agreement with Compaq in January in a cash and stock deal valued at more than $9 billion. The merger has already been approved by the European Commission, but it remains subject to Digital shareholder approval and review by the Federal Trade Commission. The companies expect the transaction to close by the end of the second quarter.

Yesterday, Compaq reported that profits for its March quarter plummeted 96 percent, while sales rose to $5.7 billion, up nearly 8 percent from the $5.3 billion reported in the same quarter a year ago. Compaq indicated in early March that sales from its North American commercial channels were not meeting internal expectations and said that it would also miss Wall Street?s expectations.

Digital said its Windows NT Intel-based server revenue grew 43 percent while Digital Unix AlphaServer revenue was up 11 percent year-over-year. Sales of 8200 and 8400 AlphaServer systems grew nearly 20 percent.

Gross margins for the quarter were 34.3 percent compared with the 33.4 percent in the year ago quarter. Product gross margin was 36.2 percent compared with 35.3 percent in the third quarter of fiscal 1997. Service gross margin was 32.3 percent for the third quarter compared with 31 percent a year ago.

Digital ended the quarter with $2.4 billion in cash and short-term investments.

At quarter's end, the company had about 53,500 employees, down 1,700 from the comparable quarter a year ago.