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Digital Equipment announces plans to spin off the unit that produces its popular AltaVista Internet search engine in an initial public offering that could yield the company up to $50 million.

Digital Equipment (DEC) announced plans today to spin off the unit that produces its popular AltaVista Internet search engine in an initial public offering that could yield the company up to $50 million.

The IPO calls for Digital to retain an 80-percent stake in the company. Digital plans to use the funds for working capital, product development, and expansion of the sales and marketing departments. Underwriters include Lehman Brothers, Cowen & Company and J.P. Morgan.

Digital announced the news at the close of the markets.

The IPO registration statement, filed with the Securities and Exchange Commission, did not list a price for the stock offering. "When and whether we do the IPO depends on regulatory and shareholder approvals and market conditions," said Dan Kaferle, Digital spokesman.

AltaVista produces search technology, including the famous search engine Web site and technology that can be embedded into individual Web sites. So far, the company doesn't sell any advertising on its Web site, so the AltaVista spin-off's revenues will come solely from sales of these individual search engines to Web site and intranet developers.

AltaVista was transformed into a subsidiary in June and is part of Digital's Internet Software business, which was created in May and includes other products for both the Internet and intranets. Under the IPO proposal, the Internet software unit will be folded into AltaVista prior to the offering.

"When we formed the AltaVista subsidiary, we believed it would enhance Digital's overall flexibility in regard to its Internet-related software," Kaferle said.

Analysts agree. "Anytime you spin something off, it takes on a mind of its own and doesn't have to be a drain on human and financial resources of the company," said Allen Weiner, an analyst at market research firm Dataquest.

Digital needs a boost from somewhere. It posted a year-end net loss of $112 million for fiscal 1996, compared with profits of $122 million the previous year. The loss was attributed to a one-time restructuring charge for 7,000 job cuts.