Digital posts $66 million loss

Digital announces a $66 million loss, attributed partly to a sales force restructuring and currency fluctuations.

2 min read
Digital Equipment (DEC) today posted a $66 million loss for its fiscal first quarter, attributed in part to a sales force restructuring that slowed its revenue flow and currency fluctuations in Europe, according to the company.

The Maynard, Massachusetts-based company said the results amount to a loss of 48 cents per common share for the quarter ended September 28, compared to a profit of 26 cents a share, or $48 million, for the same period a year ago. Operating revenues were down slightly to $2.9 billion for the quarter, from $3.3 billion a year ago.

Digital's announcement disappointed Wall Street, where the company's shares fell more than 5 percent in early trading today. The First Call consensus estimate for Digital's first quarter was a more meager 14 cents a share loss.

Digital said a new sales strategy exacerbated a historically sluggish summer selling season but vowed that the changes will aid in returning the company to "a position of industry leadership." The new strategy brings the company's worldwide sales force under one management in an effort to reduce conflicts between direct and indirect sales channels and improve customer service.

But analysts question whether the slowdown is directly related to the sales strategy. Morgan Stanley analyst Steve Milunovich told Reuters news service that the firm revised Digital's fiscal 1997 earnings estimates to $1.20 a share from $3.06 after its worse-than-expected first-quarter loss and a sharp drop in revenues. Milunovich said he maintains a neutral rating on the stock.

"The guidance near term is fairly cautious," Milunovich said. "I question whether the slowdown in Alpha servers is totally due to the sales force reorganization."

The new strategy is the latest leg of a major restructuring at the company that prompted plant closings and layoffs after a $433 million loss for the quarter ended June 30. The company has continued the layoffs, slashing 2,000 jobs during the July-September quarter to bring Digital's worldwide workforce to 57,000, the company said.

Product revenues declined to $1.5 billion from $1.8 billion, and service revenues were also down to $1.4 billion from $1.5 billion for the same quarter last year, the company said. The gross margin also fell to 31.3 percent from 32.2 percent last year.

On a brighter note, the company's Alpha system operations saw a 4 percent increase in revenue from the same quarter last year. This summer, the company unveiled its new AlphaServer 4000, 64-bit cluster-ready system. Digital said Alpha systems and services have generated revenues of $11 billion since 1992.