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Who gets credit for Digital's upswing?

Does shareholder activism lead to company turnaround? The jury is still out, but shareholders are happy nonetheless.

Does shareholder activism lead to company turnaround? There may not be a clear-cut answer, but shareholder activists may be able to take some of the credit for Digital Equipment's (DEC) focus on its core business and recent stock performance.

In June, shareholders held an informal meeting in an effort to come up with a viable solution to Digital's continued losses and falling stock price. Their solutions centered on appointing new board members, a possible merger, and focus on core businesses. Today, Digital sold its printer unit in what it called an effort to concentrate on its central operations.

"Certainly management is more sensitized [since the highly publicized shareholder meeting]. Shareholders raised some valid concerns and management has a responsibility to its shareholders, as well as to its customers and its employees," said Louis Mazzucchelli, an analyst with Gerald Klauer Mattison.

Digital's stock has gained about 33 percent since another unofficial shareholders meeting in May, and has gained nearly 80 percent to 45 since April when it bottomed out at 25 a share.

But Stephen Dube, an analyst with Wasserstein Perella Securities, said it is unlikely that the sale of the unit is related to the shareholder concerns, noting that it will not be that easy to soothe shareholders' worries. "The only thing that will ease shareholders concerns is consistent earnings."

Digital is trying. In July, the company announced earnings of $124 million, or 75 cents per share, for the quarter, beating analyst estimates compiled by First Call by 2 cents.

Bob Monks, a money manager at Lens and a Digital shareholder said the sale of the printer business is a step in the right direction. "But the company should focus its energy where it has a future, and I worry that this might be a little too late. The company lacks a sense of where it is going."

Digital, of course, disagrees. Sarah Miller, a spokeswoman for DEC, said Digital's long-term strategy is to focus Alpha microprocessors, x86 servers, workstations, personal computers for business, semiconductors, storage, networking products, software and services, and intranet and Internet offerings.

According to Mazzucchelli, today's sale of the company's Printing Systems Business unit makes perfect sense toward the company's and investor's goal of focusing on the core business.

But shedding one small business unit does not a turnaround make. Investors are still working on a plan to help the company. Monks said his group spent a fair amount of time trying to develop a plan to increase shareholder value. "But we are not technical people. There is value there, so what we say is change the board.

Herbert Denton, president of Providence Capital, who organized the May shareholder meeting said, "We have tried to do is send a wake-up call to board of directors," noting that it is impossible to tell if their actions had a positive or negative, if any at all on DEC's decisions.

"It's brutally simple?If you are going to be involved, do what ever it takes to get the stock up, and we won."