Conference 7.286::digital

    A bit early. I'm sort of expecting them out next week sometime.
    My guess though is that it's going to be close or else BP wouldn't
    have bothered reminding everyone to get their timecards in on
    time for end of the year vacations.
    
    			Alfred

	... from the broker anal-ysts about Digital?  Did we do our usual
mid-quarter expectations corrections briefing in November?  Gut feel says no
surprises are expected by them.

	Or maybe H-P and Sun advised them to "...just ignore them."!  :>)

Well, the Wall St Journal earlier this week reported that the analyst were 
projecting between a 20M loss and a 50M profit, with $10M Profit the best guess.
Any profit will be nice!  The test will be if we can sustain it! Especially 
now that we are going to being reengineering the company again (SME, CBU, 
PSC...)

keep our fingers crossed.

    I'd guess the "profit" will be a very large loss.  And BP is laying off
    38% of MCS to show what he's doing about it.
    
    t.

    Regarding MCS:
    
    I'm not an expert but the "general" Sales Organization was lifted of
    all compensation for selling MCS some months ago in favor of MCS's own
    Sales people. 
    
    I've seen some MCS sales opportunities over the last several months but
    have had a tendency to put them aside in favor of others that my wallet
    would see direct compensation for.

re: .4

It's getting to be a question of who is laying off whom.  That sound that you
hear in the distance is the birdcages being rattled again. ;^)  If we report a
large loss, we'll probably see a new President as well as more lay-offs.  If
we can't cough up a profit by the end of the FY i would look for us to merge
with another company (two whose names begin with Int* come to mind).  My guess
is that the BOD is much more closely involved in what is going on than it was
in the days when KO was King.  Whether that's good or bad remains to be seen.

								- paul

    re .4
    
>    I'd guess the "profit" will be a very large loss.  And BP is laying off
>    38% of MCS to show what he's doing about it.
    
    I just love a good rumor.  Where did you get that 38% figure?
    
    - Greg

    re .6
    
    >we'll probably see a new President 
    
    Not any time soon I hope. Mr. Palmer is trying to undo the 
    managerial mistakes of the last 30 years. He inherited a staff
    that was hired by the old regime and perhaps did not have the
    proper skills for today's market. The changes he has made are
    sound but there are still more changes to come. I am glad to 
    see that we are still changing. IMHO anyone that is satisfied
    with the way things are today still does not understand the deep
    black hole we are trying to climb out of.
    
    			-Jim-

    I think more important than whether we have a small loss or profit
    would be the fact that revenue increased this past quarter.

    
    
    I think more important that we quit living quarter to quarter and set
    up a stratedgy to become profitable in the long run.  A quarter of
    profit will not fix the problems.

    re: .8
    	The "managerial mistakes of the last 30 years" made us from 1957 to
    1986 the fastest growing company in the history of the world. Or did we
    succeed in spite of them? If we did then we can continue to succeed
    whatever Mr. Palmer tries to do.

>    	The "managerial mistakes of the last 30 years" made us from 1957 to
>    1986 the fastest growing company in the history of the world. Or did we
>    succeed in spite of them?

	In many ways we succeeded in spite of, and not because of, our
	management. Our technology was very strong, and the market expanded
	so fast that anybody could make money for a while. 

> If we did then we can continue to succeed
>    whatever Mr. Palmer tries to do.

	How very naive. The fact is that the world has changed, and the
	industry has changed with it. What used to work just fine no longer
	does -- the technology no longer sells itself, if you haven't
	noticed. We fell into the usual trap of always thinking that the bad
	times would turn around soon and the good times would last forever.
	Guess what? Neither one is usually right.

	Roy

>       <<< Note 2850.5 by GUCCI::HERB "New Personal Name coming soon!" >>>
>
>    Regarding MCS:
>    
>    I'm not an expert but the "general" Sales Organization was lifted of
<    all compensation for selling MCS some months ago in favor of MCS's own
>    Sales people. 
>    
>    I've seen some MCS sales opportunities over the last several months but
>    have had a tendency to put them aside in favor of others that my wallet
>    would see direct compensation for.

And we wonder what's wrong with Digital. It's attatudes like this that is
our biggest problem. I DON'T GET ANY CREDIT OR RECOGINTION FOR THE SALE
OF A SERVICE OR PRODUCT SO I'M NOT GOING TO WASTE ANY TIME ON IT, NOT
EVEN ENOUGH TIME TO TELL ANY ONE WHO DOES GET CREDIT. BYE, BYE ANOTHER
SALE.

    re .11
    
    You could say that General Motors had 40 years of good business.
    Would you suggest that they not change to accomodate the future?
    I think not. A companies past performance has little relevance to
    its future performance. If it did DEC would be smimming in profit.
    
    			-Jim-

    >our biggest problem. I DON'T GET ANY CREDIT OR RECOGINTION FOR THE
    SALE
    
    It's no longer a matter of getting credit or recognition. The Sales
    Force these days relys on sales for 20% of their (previously fixed)
    salary. You either sell what you get credit for with a goal towards
    making your budget or you simply take a "cut in pay".
    
    The MCS sales folks are in a similar situation. Selling hardware of
    software is charity to them and won't put bread and milk on the table.

    
    What is unfortunate here is that these two organizations (PS/SI? & MCS)
    don't have some kind of swap system where each gives leads to the
    other. And perhaps what would be even better would be if the swap
    system incurred some minimum compensation to everyone who used it.
    Not as much as something that falls in your jurisdiction, but not
    "nothing" either.

The sales force is compensated 20% (+ or -, depending on the job) for closing
business in their target areas.

THE OTHER 80% IS COMPENSATION FOR WORKING FOR DIGITAL!

Any sales rep who thinks that they have no responsibility for passing on MCS
leads doesn't understand the process.   We are ALL Digital.

Any MCS rep who thinks that they have no responsibility for passing on Sales
leads doesn't understand the process.  We are ALL Digital.

We are ALL Digital...

We are ALL Digital...

We are ALL Digital...
.
.
.

Bob

    Keep saying it Bob. 'Cos there are still too many folk in Digital who
    are happy to keep knocking the managment as it gives them someone else
    to blame and keeps the spotlight away from their own "contribution"!
    
    Subscribers to this conference excluded of course ;-)
    
    We ARE all Digital - if we lose sight of that fact then we'll be
    chanting "We WERE all Digital".

    re: .4  (the 38% figure for MCS layoffs)
    
    Apparently the 38% figure applies ONLY to the educational services
    arm(s) of MCS and does not extend THROUGHOUT that organization.  
    
    At least 5 names at PKO... (from about 18 instructors).
    
    The "official" notification date is supposed to be Jan. 24, with actual
    separation on the 28th.
    
    Pretty detailed for a rumor, I'd say... especially since the info I
    hear is directly from those "participating".
    
    tony

    I think we pass on the leads. We simply aren't encouraged (with the
    exception of selected cash incentives out of MCS) to pursue any
    business that requires any sort of long term investment of our time.
    
    I know we all work for Digital but, in order to retain the 80%, one
    must consistently meet the budget (TFSO otherwise). In order to retain
    the remaining 20% or to exceed that compensation, one must sell
    products that can qualify for "credit" that make up the overall budget.
    
    The reality is that MCS Sales folks rely upon getting their MCS
    business to keep their jobs and paychecks and non-MCS reps rely upon
    non-MCS sales.
    
    This is not an issue of passing on leads or loving (or not) your MCS
    folks. It's simply a matter of...do what you are PAID to do.
    
    I think I better spend my extra time on working on my new personal
    name....
    for sales credit.

re           <<< Note 2850.8 by GLDOA::KATZ "Follow your conscience" >>>

>    Not any time soon I hope. Mr. Palmer is trying to undo the 
>    managerial mistakes of the last 30 years. He inherited a staff
>    that was hired by the old regime and perhaps did not have the
>    proper skills for today's market. The changes he has made are
>    sound but there are still more changes to come. I am glad to 
>    see that we are still changing. IMHO anyone that is satisfied
>    with the way things are today still does not understand the deep
>    black hole we are trying to climb out of.
    
    	As infered by another reply... Excuse me, let me see you, take
    70,000 dollars and turn it into several tens of billions of dollars.
    And be considered unsuccessful? Those people helped to design the
    technologies that created todays market place.
    
    And who is to say, that we are on the road to recovery. We can't seem
    to nail down a management philosophy that works. Our downsizing, which
    should have been a single big hit, has been a continuing self
    perpetuating spiral, with no end in sight. A lot of the financial
    strife that we are in is the result of some of the newer management,
    who have no concept of responsibility for their actions...
    
    q
    
    
    Our employees are demotivated.

Note 2850.20 by GUCCI::HERB
    
    >This is not an issue of passing on leads or loving (or not) your MCS
    >folks. It's simply a matter of...do what you are PAID to do.
    
    or more simply put.. you get what you reward. it is a HUGE problem in
    this company that has many of us at odds. do we do "what's best for the
    customer and digital" or do we do "what's best for ourselves"?? these
    days you seldom can do both at the same time. so you choose. for better
    or worse.

    
    re: .23
    
    I may be sorry I went on record with this, but my
    guess is that the apocalyptic view suggested in .23 is
    wrong.  I think that the stock would have been battered
    over the past few weeks if that were true -- I think the
    corporation would have warned the analysts that their
    predictions were much too optimistic.
    
    Of course, I've been wrong before.
    
    Glenn

    Let's play a guessing game : 
    
    I predict a 10-20M loss with 320-350M decrease in revenue over comparable
    quarter last year. Last quarter set the trend for revenue slide and
    nothing has changed except some more saving in expenses leading to
    a smaller loss than last quarter.
    
    DEC stock will slide to 33+ and then will recover to about 40 before mid 
    February. Analysts will like the expense/headcount reduction numbers.
    
    FWIW, 
    
    - Rajesh

    Re: .25
    
    	I'm 100% with you !   My guesstimate is breack-even to $ -20M
    (red).    Anything over that number should be of MAYOR concern, not
    only to the employees, financial analysts and investors, but to
    this company's directors and management.
    
    	More importantly than the loss will be the decrease in revenue.
    If the decrease in over 10% over the comparable quarter last year it is
    extremly dangerous.   Moreover, considering that it is probably because
    sales on ALPHA systems are about 30% (average) below forecast.
    
    	I can be wrong but more cost reductions won't do the trick for the
    remainder of this fiscal year.   Either we increase revenue or we are
    history.   It is as simple as that !
    

    
    Does anyone know what day and time the earnings will be announced??
    

    
>        Does anyone know what day and time the earnings will be announced??
    
    	Should be tomorrow morning.

             Digital reports second quarter operating results
   
          Digital today reported results for its second quarter, which 
   ended Jan. 1, 1994
          For the quarter, the corporation reported a net loss of 
   $72,144,000, or $.53 per share, compared with a net loss of 
   $73,859,000, or $.57 per share for the comparable quarter a year 
   ago.  For the quarter, the corporation reported total operating 
   revenues of $3,254,079,000, down from $3,689,443,000 for the 
   comparable quarter a year ago.
          For the six months ended Jan. 1, 1994, Digital reported a net 
   loss of $155,329,000, or $1.15 per share, compared with a net loss 
   of $334,405,000, or $2.60 per share for the comparable period a year 
   ago.  The net loss for the first six months of fiscal 1994 includes 
   a one-time benefit of $20,042,000, or $.14 per share, related to the 
   adoption of a change in accounting principle for income taxes.  
   Operating revenues for the first six months of fiscal 1994 were 
   $6,269,027,000, down from $7,003,742,000 for the comparable period a 
   year ago.
         President and CEO Bob Palmer said, "While we expected revenues to 
   decline somewhat, we are not satisfied with the level of revenues or 
   the loss for the quarter.  We continue to navigate a difficult 
   transformation for the company within a difficult economic environment 
   and we continue to work diligently to lower our costs, stabilize and 
   then grow revenues. It took several years for the company to get into 
   this situation and it is taking some time for us to restore profitability 
   and growth.
         "We remain confident in our strategy to provide leadership open 
   client/server solutions based on our strengths in Alpha AXP systems, 
   networking, software frameworks, UNIX workstations and personal 
   computers," Bob continued.  "Several recent announcements have 
   reinforced this strategy.  Among them is the recent agreement with 
   Microsoft Corp. to define a standard for open systems interoperability 
   for object-oriented programming." 
         Bill Steul, vice president and chief financial officer said, "For 
   the quarter, we achieved essentially flat operating results compared 
   with last year even with a 12% revenue decline, a five point drop in 
   gross margins and negative currency translation.  Despite the loss and 
   restructuring activity, we generated positive cash flow from operations 
   for the quarter just ended.  We ended the quarter with a total cash 
   balance of $1.1 billion, down $127 million from the previous quarter."
         Bill continued, "The revenue decline was due principally to 
   continued decreases in VAX systems, associated software and services.  
   Our personal computer business continued to double in units, year over 
   year, and showed strong double-digit revenue growth.  Alpha AXP 
   workstations also continued to show good growth in the quarter.  Revenue 
   for products such as storage devices, low-end networking products, 
   printers and terminals also grew in the quarter.  The effects of foreign 
   currency movements were negative this quarter, similar to the first 
   quarter.  Our business in the major economies of Europe and the U.S. 
   remained weak while we experienced growth in Asia Pacific and Latin 
   America.
         "Product margins declined compared with the same quarter last year 
   primarily due to the mix shift toward more lower-priced, lower-profit 
   products such as personal computers and workstations," added Bill.  
   "Digital's products and service are priced very competitively.  We 
   expect continued product margin pressure and are adjusting our business 
   unit strategies and cost structure accordingly.  Given economic 
   uncertainty, product transitions, and competitive pressures we remain 
   cautious about our outlook for the second half of fiscal 1994."
         Ed Lucente, vice president, Worldwide Sales and Marketing said,  
   "We further strengthened our sales and marketing efforts with 
   several recent announcements, most notably the recent hiring of 
   Vincenzo Damiani to head our European operations.  We also announced 
   expansion of our distribution channels adding volume resellers for 
   our Alpha AXP personal computer products and distributors for our 
   semiconductor components, including the Alpha AXP chip.  
         "We continue to work with customers such as Hoechst Canada, Scott 
   Paper, Corning, Schering-Plough, Exxon USA and Toys-R-Us to provide 
   solutions based on our Alpha-ready VAX and Alpha AXP systems," Ed 
   concluded. 
   
                                          THREE MONTHS ENDED
                                   JAN. 1, 1994    DEC. 26, 1992       
   
   Product Sales                $1,659,924,000   $ 1,967,234,000       
   Service & Other Revenues      1,594,155,000     1,722,209,000       
   Total Operating Revenues      3,254,079,000     3,689,443,000  
   Cost of Product Sales         1,112,292,000     1,116,538,000  
   Service Expense                 968,473,000     1,058,270,000  
   Total Cost of Sales           2,080,765,000     2,174,808,000  
   Research & Engineering          330,948,000       404,843,000     
   Selling, General & Admin.       908,688,000     1,177,306,000  
   Net Interest (Income)/Expense     3,327,000        (1,655,000)     
   Loss before Income 
    Taxes                          (69,649,000)      (65,859,000)   
   Provision for Income Taxes        2,495,000         8,000,000      
   Net Loss                      $ (72,144,000)  $   (73,859,000) 
   Weighted Average Shares
    Outstanding                    136,028,383       129,154,484    
   Net Loss Per Share            $        (.53)  $          (.57)     
 
                                          SIX MONTHS ENDED
                                JAN. 1, 1994      DEC. 26, 1992  
 
   Product Sales               $ 3,216,928,000   $ 3,735,055,000 
   Service & Other Revenues      3,052,099,000     3,268,687,000 
   Total Operating Revenues      6,269,027,000     7,003,742,000  
   Cost of Product Sales         2,093,707,000     2,136,495,000 
   Service Expense               1,912,350,000     2,075,920,000  
   Total Cost of Sales           4,006,057,000     4,212,415,000  
   Research & Engineering          645,665,000       810,320,000    
   Selling, General & Admin.     1,780,895,000     2,308,493,000 
   Net Interest (Income)/Expense     5,750,000       (11,081,000)     
   Loss before Income Taxes &
    Cumulative Effect of Change                       
    in Accounting Principle       (169,340,000)     (316,405,000)  
   Provision for Income Taxes        6,031,000        18,000,000     
   Loss before Cumulative Effect 
    of Change in Accounting 
    Principle                     (175,371,000)     (334,405,000)  
   Cumulative Effect of Change in          
    Accounting Principle            20,042,000             ---            
   Net Loss                     $ (155,329,000)   $ (334,405,000)
   Weighted Average Shares
    Outstanding                    135,519,380       128,578,210    
   Loss Per Share                       
    Before Cumulative Effect of
    Change in Accounting Principle    $   (1.29)  $       (2.60)       
   Earnings per Share on Cumulative
    Effect of Change in Accounting 
    Principle                               .14            ---          
   Net Loss per Share                 $   (1.15)   $      (2.60)      
 
           Selected Balance Sheet/Cash Flow Data - Q2, FY94
 
   Balance Sheet:
   Cash & Cash Equivalents........................     $  1,147,257,000       
   Accounts Receivable, Net.......................        2,795,969,000       
   A/R Days Sales Outstanding                                 77 days 
 
   Inventories:  Raw Materials............... $ 403,800,000 
                 Work in Process.............   606,630,000
                 Finished Goods..............   939,926,000 
                   Total.........................         1,950,356,000   
   Prepaid Expenses and Deferred Income Taxes.....          405,669,000
                Total Current Assets..............        6,299,251,000     
   Net Property, Plant & Equipment................        3,145,660,000
   Other Assets, Net..............................          923,846,000
        
   Total Assets...................................       10,368,757,000
       
   Bank Loans and Current Portion of LTD..........           11,574,000 
   Restructuring Reserve .........................          442,705,000
   Total Current Liabilities......................        3,299,272,000 
   Noncurrent Deferred Income Taxes...............           26,369,000
   Long-term Debt.................................        1,017,360,000
   Postretirement Benefits........................        1,195,805,000
   Total Liabilities..............................        5,538,806,000
   Stockholders' Equity...........................        4,829,951,000
   Book Value per Share...........................     $          35.03 
     
   Cash Flow:                                     QTR            YTD    
 
   Cash Flows from Operating Activities,    $  6,386,000   (240,648,000)
    Including Deprec. & Amort. of........... 188,158,000    362,718,000
   Cash Flows from Investing Activities,    (198,038,000)  (331,205,000)
    Including Investments in PP&E of........ 181,069,000    348,070,000  
   Cash Flows from Financing Activities.....  65,079,000     75,915,000
 
   Net Decrease in Cash and Cash 
    Equivalents.............................(126,573,000)  (495,938,000)
   Non-U.S. Revenues .......................   2,044,886      3,855,345     
                                        or        63 %           61 %
 
   Employee Population:  Regular..................               87,500
                         Other....................                4,800
 
 _____
 UNIX is a registered trademark licensed exclusively by X/Open Co., Ltd.

                       FOR DIGITAL INTERNAL USE ONLY

    .25:
    
    Well, your first paragraph was a trifle optimistic, but not that far
    off -- hope we'll say the same about your second paragraph!
    
    Dick

    As of 10:45am DIGITAL stock just slid down 3 points to 33 1/4.
    
    Moe

Total operating revenues were greater than in Q1 of this FY, but less than
in *Q1* (as well as in Q2) of last FY.  That seems especially ominous to me,
given that Q1s are always considered to be "weak" quarters.
								- paul

Re:     <<< Note 2850.32 by AIMHI::GODIN "technical consultant...NOT" >>>

>    As of 10:45am DIGITAL stock just slid down 3 points to 33 1/4.
    
Actually, the -3 took it down to 33 1/2.  As of 11:00 it was already down
further -3 3/8 to 33 1/8. 

-  David

    i would'nt pay much attention to stock prices, these are just numbers
    on papers, they go up and down, DEC has not changed much from 9:00 AM
    to 11:00 AM to worry about it.
    
    this shows that these numbers don't reflect what is really happining in the
    real world.
    
    i always take stock prices with a grain of salt.
    
    \nasser

    Sure /Nassar, sure. A real comfort to anyone that actually
    owns stock (I don't anymore).
    
    Lee

    >Sure /Nassar, sure. A real comfort to anyone that actually
    >owns stock (I don't anymore).
    
    but \Lee, you will only lose money if you sell, so my advice is
    to just keep the stocks and dont sell and they'll eventually go up
    back again so then you can sell if you want, but meanwhile i would
    just ignor the stock prices becuase they go up and down all
    the time, we were at 33 then went up to 40 then down to 34 then up
    to 38 then down to 33 then up to 42 and now down to 33 and the cycle
    goes on.
    
    \nasser
    |
    |___________________> please note the slash direction in my name.
    
    

    
    I would. Since this AM I have lost about $800ish dollars since the
    drop. That may not be alot to you, but it is too me. I have owned my 
    stock since the time I started buying it, probably not wise, but I 
    held onto it.
    
    And as a shareholder, I am concerned.
    
    MEF
    

    re: \Nassar
    
    And what about those holding shares that they bought in the ~$190
    range? How long will they have to wait for them to 'just go up'?
    
    Lee
    
    

  And the price of the stock shouldn't be our only concern. I heard
  a couple of years ago that some analyst predicated that Digita
  was on a downward spiral that it would never pull itself out and
  back to profitability.

  He predicated that the company would start selling off "pieces"
  and be transformed in to a small service oriented company. Less
  then 30K employees.  I laughed then. I'm not laughing anymore.

    	It's clear to me from these numbers that not enough people took
    vacation around the Christmas holidays and/or didn't get their
    timecards in on time. I'm surprised this wasn't mentioned in the
    quarterly report, with BP saying, "We expected the bottom line to be
    considerably better but were disappointed with how few employees took
    vacation during the Christmas holidays. With so many employees working
    hard during the holidays, it wreaked havoc on the financial results. We
    are considering instituting mandatory vacations for all employees for
    all of Q3, and if the numbers improve, make the vacations permanent.
    Perhaps with everyone on vacation, Digital can once again return to
    profitability."

    Re. 38
    
    Many of us are shareholders.  Many of us are also shareholders in other
    companies.
    
    For instance, would you sell Disney (down now because of Eurodisney and
    the general economy) because it's down, or hang on to what has been
    historically a cash machine (but also has gone up and down).
    
    We are attempting to tuirn around.  Wall street doesn't like to look at
    much more than now and now+3 months (no matter what wisdom says, the
    institutional money (lots ant lots and lots) is drivern by CURRENT
    value of the funds, published daily).
    
    If you are not tied into a mutual fund, but directly own stock, you can
    look out beyond todays price drop (or even price rise).  If you
    believe DIGITAL will survive and it does, the stock will eventually
    rise.
    
    To put your money safely away at 7% (if you can get it) tax free,
    yuo money would double in a little over 10 years.
    
    To put your money away at 5%, you'd wait 15 years.
    
    Where do  you believe DIGITAL will be in 10 years ?  Will the stock
    have doubled by then ?  (This is not great returns, but a perspective).
    
    Actually I would be unhappy with a mature stock that took more than 5
    years to double, if it had no dividend.
    
     Btw: I have lost $1546 as of 12:15 EST, BUT I have gained more than
    that in the last three weeks.  Has the outlook changed  since last
    week, last December, Last year, or how about 32-3 years ago.
    
    Come on, we don't work for Wall Street, we work for ourselves (those
    who are shareholders).
    
    \Bill (to be safe, also /Bill)
    

    
    
    rep .42
    
    
    	Geee! I could just about here music in the backround, as I read
    	that reply..... ;-)

    Here are those numbers:
                
                FY'94    FY'94                FY'93
    Category    Qtr. 3   Qtr. 2   Inc/(Dec)   Qtr. 3   Inc/(Dec)
    --------    ------   ------   ---------   ------   ---------
    CGS         34.18%   32.55%   1.63%       30.77%   3.41%
    
    Serv. Exp.  29.76%   31.31%   (1.54%)     30.70%   (0.94%)
    
    R&E         10.17%   10.44%   (0.27%)     12.23%   (2.06%)
    
    S,G&A       27.92%   28.93%   (1.00%)     34.13%   (6.21%)
    
    Gross Mar.  36.06%   36.14%   (0.09%)     38.52%   (2.46%)
    
    DSO         77       85       (9.41%)
    
    
    	I guess the numbers speak for themselves.  CGS is increasing,
    gross marging is decreasing (almost 3 points versus last year !).
    Good job with DSO 9.41% down from last quarter.
    
    	The focus has to be in revenue generation !

.42

Actually, Disney in light of the fact that there seem to be some good
things happening in the Euro-Banks negotiations is up almost 5 points
in the last two weeks.  And since the split occured early last year
3:1 at 120 to get to 40, Disney is up, right now at 47 1/8.

    I believe that many of you are missing the point!!!
    
    DEC	32.58 x 100 shares
    
    book value 35.20
    
    What an opportunity!!!
    
    Commission	40$
    
    To me that spells money in the bank.
    
    TLA

Note 2850.24 by BOOKS::HAMILTON 
    
    >guess is that the apocalyptic view suggested in .23 is
    >wrong.  I think that the stock would have been battered
    
    it's not apocalyptic. it's, unfortunately, all to correct.

    
    re: .48
    
    No, in fact we're not there.  .23 (gone now) suggested 2-3 hundred 
    million loss for the quarter.  I would agree, however, that
    the revenue numbers are certainly terrifying.
    
    While I'm back on the subject, can someone with financial
    experience explain Palmer's message to me?  I don't
    have the text in front of me (nor do I have the author's
    permission to post :-)), but it was floating around
    today.  He argues that we generated positive cash flow from
    operations in Q2, and that the company is operating near
    its breakeven point. How are those two points possible while
    still reporting the 72M loss?  
    
    Glenn

From:	MLMAIL::MLMAIL::MRGATE::"MROMTS::SALES::A1::PRESIDENT" 20-JAN-1994 00:35:19.98
To:	@Distribution_List
Subj:	#4483-Q2 Earnings in Perspective

From:	NAME: Robert B Palmer @MLO          
	FUNC: Office of the President         
	TEL:                                  <PRESIDENT AT A1 at SALES at MRO>
To:     See Below

			DIGITAL INTERNAL USE ONLY


Earlier today we released our financial results for the second 
quarter of the 1994 fiscal year.  Despite a revenue decline of 
approximately 12 percent or $435M, we managed to report a loss 
that was slightly less than that experienced in the comparable 
quarter one year ago.  For the six months, although our 
revenues are down by approximately $735M with respect to the 
six months of the previous year, we were able to reduce our 
losses by more than half.  We have now accomplished five 
consecutive quarters of improving year-over-year results, 
following seventeen quarters of declining year-over-year 
results.  The point is that these results are not yet what we 
intend to achieve by any means, but we continue to move in the 
right direction and are reversing a situation that took us 
many years to get into.

The company is operating very near its financial break-even 
point, and our emphasis is on supporting our worldwide sales 
and marketing professionals to increase our revenue and get 
into the black as quickly as possible.  It is important to 
note that during the second quarter, we had a slight positive 
cash flow from operations, and we have sufficient cash on hand 
to manage our affairs.  We also had some bright spots in our 
performance, such as the surging demand for our personal 
computers and continued steady progress in Alpha AXP 
workstations, networking components and peripherals.  The 
decline in our revenue results primarily from a change in 
customers' buying habits--purchasing fewer high-end systems 
with their higher margins and instead purchasing more low-end 
systems with lower margins.  In addition, both Europe and the 
United States have relatively weak economies at this time.  
Also, we had a significant negative impact on our revenues due 
to currency fluctuations.  We were successful in growing our 
business in the Asia Pacific region.

Each and every member of the Senior Leadership Team is 
personally accountable for results in his or her area of 
business.  They, in turn, are expected to hold everyone in 
their respective organizations accountable.  Our success as a 
corporation depends on each of us being focused 100 percent of 
the time on satisfying customers.  That applies to all 
employees, whether you spend most of your time talking 
directly to customers or if you are part of a team that 
ultimately creates and delivers products or services. We are 
all part of the same team, and we can only win by working 
together as a team.  We have made significant progress with 
the transformation of Digital.  As I have said from time to 
time, this is a marathon not a sprint.  It requires tenacity, 
customer focus, and relentless improvement in the productivity 
and responsiveness of all Digital work groups.  Each of us can 
help most by concentrating on those things we can do to 
achieve this improvement in our own work groups and by having 
trust in our fellow employees' ability to do the same.  I am 
confident in the quality of our employees, technology, and 
leadership team, and I believe we have the right strategy for 
producing the turnaround that we are all working to achieve.  
By working together and focusing on customer satisfaction, we 
will be successful.

To Distribution List:

[deleted]

    
<<< Note 2850.50 by BOOKS::HAMILTON "All models are false; some are useful - Dr. G. Box" >>>
                            -< point and question >-
    
    
|    He argues that we generated positive cash flow from
|    operations in Q2, and that the company is operating near
|    its breakeven point. How are those two points possible while
|    still reporting the 72M loss?  
    
    
    I would also like to know the answer to this question!
    
    Peter
    
    

    re -1:
    It has to do with issues of fixed costs and variable costs. Also with
    cash generated from operations vs a loss which includes non-cash items
    like depreciation.
    The point is that when we are operating very close to covering fixed
    costs, then incremental revenue moves very quickly to the bottom line.
    
    A sign that, negative views to the contrary, we are indeed on the right
    track. It ain't quick or easy, but it is attainable.

    
    re -.1
    
    If the right track is continually declining revenue, then we're on it.
    Wang, move over, we're hot on your tail!

    
    Regarding "positive cash flows":
    
    In accounting, sometimes you realize revenue but don't get paid in cash
    at the same time (for example, you extend credit).  If a company sold
    a product and the customer paid with credit, the company reports
    revenue for the product sold, but the cash account remains the same
    until the customer pays the cash.  When the cash is received, the cash
    account increases (positive cash flows).
    
    There are other sources of cash (e.g., sell some stock, sell some
    property, plant, equipment, etc.).  Where cash went for the reporting
    period can be found in the Statement of Cash Flows.
    
    Before anyone takes the "we had positive cash flow" statement as
    a good sign, look at the Statement of Cash Flows to see where the
    cash actually came from.  For example, if I had $600 dollars in the
    bank, took a 12.5% pay cut, and then sold my home for $2,000 dollars
    which I bought for $2,500, I would have a positive cash flow this quarter
    of $2,000.  However, I would also have a loss of $500.  But, my cash
    account would be increase by $2,000 to $2,600.
    
    Now, when my friends ask "how did you do this year?", I could say, "not
    bad, I only lost $500 but had a positive cash flow of $2,000".
    
    Dennis
    

                          
    The way the results were explained to me made me feel a little bit more
    optimistic about the implications of our poor Q2 result. For example, 
                                                    
    * One reason for the decline in revenues is the fact that the Vax
    product life cycle began to decline before the Alpha curve had made any
    significant growth. 
    
    * We now have a world class Unix operating system (so Im told). For
    example we have moved from a position of being quickly crossed off short
    lists to now being able to compete head to head with the like of HP and
    Sun...and win.
    
    It may be too simplistic to blame a product transition for the poor set
    of results but the fact that we have a leading edge microprocessor
    technology and a competitive UNIX must place us in a good position to
    succeed in FY95. In addition we do not have a debt problem which
    amongst other things was responsible for the demise of Wang.
    
    I now have more belief in our prospects for future success - or have I
    believed the builders of the Titanic who said it was unsinkable !
    
    Time will tell.
    

    
    re: .55
    
    Ok, but Palmer said we had a small positive cash flow *from
    operations* (or words to that effect).  Taking that at
    face value, I would read it to mean that we didn't play
    funny accounting games for the cash position improvement.
    
    And, re: .54 (I think) -- thanks for the explanation.  I gather
    that when one is grasping at straws, the fact that we covered fixed
    costs is better than some other alternatives.
    
    Glenn

    
    one commentary of the q2 results showed $443 million left in the 
    restructuring reserve. by when is this money to be spent and what
    happens to it if not spent by end fy94. seems like lot of money.
    anyone with fiscal savvy, please elaborate on the implications of 
    these reserves. why can't it used to improve the results?

       re .58
    
       According to the article in last evening's Worcester MA paper,
    Digital's CFO, Bill Steul, stated that another 7,000 bodies would go
    before June 30... That should take care of some of this 'reserve'...
    
       John Mc

    	I can't believe anyone could put any of this in a positive light. I
    had to read that BP message a couple of times because I couldn't
    believe my eyes. We're saying it's *good* news (the right track, etc.)
    that our revenue numbers can be so low and yet we're not losing nearly
    as much money as we used to (at this revenue level)! Wow, that IS good
    news! So when revenues drop to zero, we won't go under nearly as fast
    as we would have.
    	I hope this happy-face message was an attempt to keep a positive
    outlook and doesn't really reflect how BP or the SLT feels about the
    current situation. They should be scared, angry, and prepared to take
    drastic measures to increase revenues.
    	By the way, has anyone yet seen a "corporate" business plan which
    explains how we intend to be in the black by the end of FY94? Where do
    we expect the revenue growth to come from? And you don't have to tell
    me that it won't be from software sales.
    	I'm tired of the excuses...blaming international exchange rates,
    etc. HP's doing great. Others are doing great. BP and the SLT are now
    "responsible and accountable" but I don't see actions that back this
    up. The grunts are becoming increasingly nervous, not just about their
    own jobs but about the company's health. Do people really see positive
    aspects of this quarter's earnings and a trend that will lead us to
    profitability? I'd certainly like to feel better about this!

    
    
    		Dec stock dwindling as we speak....... 31 5/8th and
                dropping.............
                                    ............
                                               ........
                                                       ...........
                                                                 ........
                                                                      ....
                                                                        ...
                                                                         

    
    I'll tell you what I find most disturbing about the past year.
    The US economy is in a business equipment *boom* (see
    Fortune magazine for the past few months) that we are
    losing out on.  HP is not losing out, nor is Sun, nor are
    the PC makers.  By the time we get our house in order,
    the boom will have leveled off.
    
    I am generally not a pessimist. I'd like to believe we'll
    pull out of this, but I was driving in this morning with
    a song playing in my head (any Boston Red Sox fan will 
    appreciate this):
    
    "NAH NAH NAH NAH, NAH NAH NAH NAH, hey, hey, gooood bye."
    
    Sign me, disgusted.            

    Could the "positive cash" flow come from the sale of the Westminster
    facility?  If we finally closed on that building/land it may have
    helped out.
    
    TL

Perhaps with all of this "good" news about our financial performance
it is time for more pay raises...?

		;^)

>>    <<< Note 2850.64 by AMCUCS::YOUNG "I'd like to be...under the sea..." >>>

>>Perhaps with all of this "good" news about our financial performance
>>it is time for more pay raises...?

Of course,  it's probably worth another hundred thousand to BP.

Garry

    Believe it or not, I'm actually optimistic.  Reason is that I see
    Digital moving from a high-margin market to a low-margin market and
    this is the transition period.  Our main problem is that we haven't 
    yet ramped up the volumes on the new low-margin stuff.  But the good 
    news is that these products appear to be ramping up.  Given this, we 
    may still lose whole groups, especially those needed to support high-
    margin products.  But, those that remain may thrive on the low-margin
    products we will continue to support.  We keep comparing ourselves to
    HP, Sun and others.  These companies, where they are being successful,
    seem to be doing well on low-margin products -- the domain that we are
    heading to.
    
    Steve

    I agree with -.1.
    
    The revenue would have declined even if we kept all the people we had
    and all the 'old' product lines we used to have etc. The expenses would have
    been much greater. This year, we have a real shot at not only doubling
    our PC revenues, but actually making a profit out of that business -
    couldn't have happened if the mgmt. hadn't taken the necessary steps.
    Same thing with the Networks, storage, and components/peripheral
    businesses. All the indirect sales channels/partnerships have been
    in place now. VAX decline was indeed expected and its actually good news
    that it was quite steep last quarter - how bad can it get if its
    already very low. Workstation volumes are improving and so is our
    market share there. If the right 7-8K people are laid off, that should
    reflect immediately in the bottom line as they aren't producing any
    revenues anyway (not because of their ability but the products they
    might be working on).
    
    May be I am too optimistic but I don't see us following Wang or
    Prime or DG. They simpley didn't have the technology and the mix
    of products that we have. All our prospective growth areas have
    excellent products and technologies. And we are learning (albeit a
    bit slowly) how to sell those in volumes and live with lower margins.
    Yes, the pressure will remain and wrong moves will be punished heavily
    by the market place. Yes, the company might end up at 10-12 Billion
    company. But we will get back to profitibility.
    
    I am holding onto my stocks.

    
    Re: .66
    
    Palmer's seeming lack of concern about the declining revenue
    could mean that the long term intention is to lead Digital to
    being a say 25K person 6 billion dollar company that makes a profit.
    
    Steve
    

    Re -1 and earlier concerns about declining revenue:
    
    -ANY- company ought to be able to make a profit regardless of revenue
    size, and the fact that Digital seems to be headed in the direction of
    improving profitability is
    indeed positive. Now, no one is thrilled about declining revenues, and
    we ALL own a piece of improving that, but to assume that the solution to our
    problem is only by increasing revenues shows not much awareness of how
    a business should be run. Digital, like any other company,  should make
    a profit regardless of revenue size.
    
    RE earlier comment about 'cash from operations' being from sale of
    Westminster - nope. By definition, that is an extraordinary event and
    is NOT 'from operations'. 'Cash from operations' means from running the
    mainline business and specifically does not include those items which
    are not a normal part of doing business.

    RE: .69  by MRKTNG::BROCK 
    
    >RE earlier comment about 'cash from operations' being from sale of
    >Westminster - nope. By definition, that is an extraordinary event and
    >is NOT 'from operations'. ...
    
    But, has Westminster been sold?
    

    Hmmm -- Gettin' a nervous feeling in the pit of my stomach -- Haven't
    had that before -- 
    
    It seems to me that we continue to transition from the high-margin
    company we were to the lean agile company we need to be in the new
    world.
    
    It's a wild ride and I keep believing that we happen to be leading it
    --- H/P, and SUN are going to go through the same dislocation and
    readjustment we have been painfully experiencing.  The trick is for us
    to be in a position to take advantage of that as it happens.
    
    From a reliable source inside of H/P, I've been told that they are
    predicting a 2% net margin on their iron by 1996 -- Ain't no one gonna
    make any money at that if humans touch the product very much in the
    infamous supply chain.
    
    H/P's PA-RISC is in the same position VAXes were when H/P made the run
    at us -- The wheel has turned and now we are in position to make the
    run -- I believe OSF will consistently win over HP/UX. I believe ALPHA
    and our networking products will gain their fair share of market.
    
    As I have been told, a few years ago H/P's morale was in the dumper
    because Digital was winning many of the deals.  Their management
    decided to beat Digital at all costs.
    
    It seemed (as I'm told) to be a rallying point to the employees. 
    
    Slowly they started to make progress.  At the point in time, pundits
    were saying that we had a 3 year lead on H/P.
    
    Slowly they came -- then it was:  They're even with Digital.
    
    Slowly they came -- then it was: They're winning
    
    Soooo, here we are today -- me with a nervous stomach and thee forever
    bitching.
    
    And, of course, H/P having mindshare.
    
    Slowly  -- the word is slowly -- It happened slowly.  We aren't going
    to do a rapid turnaround -- Too many of the Pre-Palmer management cadre
    are still in place -- We will turn around -     Slowly. 
    
    It seems to me we have the products and in the near term will have
    more.  The basic problem is in having usable applications in the OSF
    world -- Our roots came from working with Software and systems
    providers -- We need to get them on our side.  I'm getting the feeling
    this isn't easy.   
    
    It just seems to me that we
    should focus on one "enemy" -- Say H/P and be single minded in our
    attack.  If we beat them, we win.
    
    But we have to do it together.
    
    

    
    CNBCs Buy, Sell or hold was favorable on Digital last night. The stock
    was rated a "Buy" for the 12-24 month timeframe and the price thought
    was $45.00/share.
    
    They were favorable on the company, stating it had a strong balance
    sheet and that we were headed in the right direction for change.
    
    Mary
    

    RE: .72, Read note 2868 in this conf before you go and buy stock.
    This company will not turn around until Palmer thins out the middle
    manager ranks. These are the people directing us and making the
    operational decisions. I've been told we have a manager/employee
    ratio of about 1:3.5. If this is true why doesn't Wall street talk
    about that instead of focusing on revenue/employee ?
    

    Re:  .73
    
    Good point -- I thought a viable span of control was about 9-12
    employees per manager.
    
    My take is that Palmer and crew will work torwards that ratio -- When
    the heads start to get cut, we need to see how many mid-levels stick
    around -- It's part of the old Digital culture that needs to change.
    
    And on a similar note:  I've been hearing lots of rumors in the past
    two days -- One is that Consulting is going to be a separate P&L --
    
    That's going to be interesting -- I heard that the Practices
    organizations have 15,000 folks (approx)
    
    Given 1:3.5 ratio mentioned in .73, I'd be interested to know how many
    a##-in-the-grass folks are in the Practices as compared to peripheral
    folks "supporting" the AITGF's.   15,000 heads is a load!
    
    Regards,
    
    Dennis 

    Re Worker bee to Manager ratio. After the TFSO bandwagon swung through
    yesterday, MCS in the Texas district has a ratio of 1:24 or so. Some
    engineers are literally hundreds of miles away from their managers.
    
    Harry
    

    
    or in some cases, thousands of miles.

    I'd very much like to see a TFSO that was specifically targeted and
    goaled and measured against a success criterion of an increase in the
    average span of control of management.  No more of this "we laid off
    90% of the workerbees but _mirabile dictu_ we still have all our
    managers" crap.  And (making this explicit) have the SLT cut, across
    the board, all groups that fail to achieve that criterion.  This will
    encourage rational rather than political (as it is now) or, at worst,
    random cutting.
    
    Will it ever happen?  Was it ever advertised as having been done?
    

    On Digital Consulting - it IS a seperate P+L since beginning on
    January.
    
    Paul