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VNS COMPUTER NEWS: [Tracy Talcott, VNS Computer Desk]
================== [Nashua, NH, USA ]
Friday's Market Fair Market Value
Quote Change Dow Jones Change 1-Jun-1994 $21.375
IBM 83 5/8 + 1/4 30-Nov-1994 $34.437
HPkd 123 - 1/8 85% of lower $18.25
Msft 73 7/8 +1 1/8 1-Dec-1994 $32.375
DEC 35 1/4 +3 4138.67 +50.84
DEC PRa 23 7/8 unch.
Digital - Digital's New Equipment
{The Boston Globe, 19-Mar-95, p. 55}
The computer giant places multiple bets for growth
[Photo. Caption: Digital vice president Charles Christ: "We've been in
networking since Moby Dick was a minnow."]
Ray Southworth never heard of the InfoServer computer until it was off the
production line. The late information made his work hard: It was Southworth's
job to sell the new machine.
But at Digital Equipment Corp., the networking products group often undercut
its own sales team. Run by engineers, the division gave its sales managers
little time to advertise a product or to train workers in computer stores.
Once the marketing began, Southworth could not tell whether his ad campaigns
had an effect. Digital collected sales information from computer resellers
only every quarter, and it did not say which products were selling well in
which region of a state.
In fact, the Digital of even two years ago did not work hard to push such
products as the InfoServer, which stores disks called CD-ROMs and makes the
information on them available over a computer network. Digital focused, for
the most part, on one thing: Selling its flagship product, the VAX
minicomputer.
And when the VAX market sank, so did Digital.
Today, Digital likes to count that kind of behavior as part of its past. In
its turnaround plan, it has decoupled each component of what was the VAX
system. Every product - the printers, video terminals, software, data storage
devices and the main computer itself - competes separately, in its own market,
against different industry rivals.
[Photo. Caption: Sultan Zia oversees Digital's video server business, a
product that Zia promises will great large profits.]
Much attention has focused on Digital's follow-up to the VAX - the fast
Alpha chip that powers a line of speedy computers called servers and
workstations. But Alpha is not the sum total of the nation's third-largest
computer company.
Digital is working hard to push a variety of other products, and marketing
has finally taken center stage. Says Southworth: "We don't build a product
and throw it over the wall any more. We are much more proactive."
What products, other than the Alpha, will help Digital grow again? Where
might it become a leader? Some possibilities follow.
'Heart and soul is networking'
More than 20 years ago, Digital devised ways for one computer to communicate
with another. With sophisticated software and cables, the VAX minicomputer,
the machine that made Digital rich and powerful, could link to other VAX
computers within an office or across the country.
Even today, computer networks are Digital's forte, the company claims. Says
chief technology officer William Strecker: "Digital's heart and soul is
networking."
So why did we have Wellfleet Communications Inc. of Billerica, the hotshot
networking company? Why did Cabletron Systems Inc. of Rochester, N.H., and
Chipcom Corp. of Southborough grow large in an industry pioneered by Digital?
Until recently, Digital's networking products were pitched almost
exclusively to its VAX customers. That made its networking unit huge but not
dominant. With about $600 million in annual sales, the unit is growing at
about 10 percent a year. Digital thinks it can grow twice as fast.
As part of its growth plan, the division has organized a force of "network
warriors" who try to sell Digital products through computer stores and
resellers. Several years ago, 10 Digital employees focused on this type of
selling. Today, 150 workers in the United States and 100 overseas are on the
job.
"Networking can be a growing part of Digital, if they are smart enough to
make marketing-based decisions and move quickly and aggressively," says
Charles Robbins, vice president for communications research at Aberdeen Group
Inc. in Boston. He thinks Digital is ahead of the technology curve with two
products in particular: its ATM switches, which will help route video and
computer traffic through high-speed networks of the future, and a product
called NetRider, which helps workers on the road communicate with computers in
their office.
Charles Christ, vice president and general manager of Digital's components
division, argues that Digital has an advantage because it makes a variety of
such products.
Elsewhere in the industry, "hub" makers like SynOptics Communications Inc.
have merged with "router" makers like Wellfleet as their networking products
became similar. Digital has a hand in all of these product lines, "so we are
further ahead than some in understanding the implications of this
convergence," Christ says.
"We've been in networking since Moby Dick was a minnow."
Video servers give users the power of choice
Sultan Zia's business was in deep trouble. As general manager of Digital's
VAX9000 unit, his job was to push the company's largest-ever computer into as
many businesses as possible. But the VAX9000, Digital's version of a
mainframe, came out just as the mainframe business declined. And customers
were more likely to stick with one company that defined the mainframe business
- IBM.
So two years ago, Zia offered a proposal to his boss: Let's start something
new, in a business that is bound to grow. Today, Zia runs one of the most
promising pieces of Digital, its video server business.
Video servers are special-purpose computers used to store digital
information - like movies - and route it to viewers on request. By Zia's
calculation, they will be a $5 billion market by the year 2000, when
interactive television and movies-on-demand systems are expected to be big
business.
"This will have big revenue and profitability, because this is a high
gross-margin business," Zia says.
But the market could take years to develop. Several times, companies have
announced trials of the video-on-demand systems only to cancel them due to
technical problems or low customer interest. Moreover, the field has drawn
other big players, such as IBM and Silicon Graphics Inc. Microsoft Corp.
claims its entry, made from inexpensive personal computer parts, will undercut
all rivals on cost.
But Digital says its servers have been chosen for 18 trials or deployments
of video-on-demand systems.
"They have more wins than any other hardware vendor, by my count," says
William Bluestein, an analyst with Forrester Research Inc. in Boston.
Bluestein and Bruce Ryon, an analyst with Dataquest Inc. in San Jose,
Calif., say one of Digital's strength is that it offers a range of systems,
from small ones to the very large. Bluestein says Digital is trying to build
video-on-demand systems for hotels and television stations - smaller systems,
but ones that could actually find buyers before the nation's big cable
television companies deliver the large systems into people's homes.
After years on the sidelines, Digital gets personal
Light, slim yet bursting with features, the HiNote portable computer could
serve as the new metaphor to the trimmed-down, product-focused new Digital.
"I can't make enough of 'em," says a proud Robert Palmer, Digital's chief
executive, faking a sales pitch to visiting reporters. Orders are so
backlogged that Digital's chief technology officer, William Strecker, has not
been able to get one. And that, Palmer says, is no fake.
The HiNote is a product few expected from Digital. Until last year, its
laptop computers were an industry laughing stock. As Compaq, Apple, Hewlett
Packard and IBM tapped into the fast-growing portable market with leading-edge
offerings, Digital seems to be in PC denial, half-heartedly slapping its name
on nondescript portables built by others.
Even now, spiffy as the HiNote is, technology moves quickly in the computer
industry. IBM, for example, recently launched a similar machine that features
a two-piece keyboard that spreads out to full size.
Digital is aggressively pushing its personal computers and laptops. In
another break from the past, the personal computer division is courting the
consumer market, signing deals to put its computers in national chain stores
such as CompUSA, Sam's Club, Sears and Circuit City.
"in the previous management, PCs were considered little more than toys,"
says Enrico Pesatori, general manager of Digital's computer systems division.
"By the time the toys had become a $50 billion-a-year market, the company did
change its mind."
Digital is selling PCs at a pace of $2 billion a year. If that rate holds
up, personal computers will account for roughly 15 percent of the company's
revenues this year.
"Our presence in personal computers was nothing two years ago," Pesatori
says. His goal is to thrust the company into the world's top-five PC makers
by the end of this year. It is currently around 10th place, depending on
which market research firm is counting.
There will be a big celebration at Digital if it makes the top five, to be
sure, and it would surprise more than a few industry analysts. But no one is
dismissing Pesatori's resolve.
Ashleigh Davenport, of CompUSA's retail store in Brighton, says Digital has
what it takes to distinguish PCs in a crowded market. Digital offers service
packages that include software consulting and one-on-one training for large
customers.
Linking up with Microsoft shakes on-line market
In the world of on-line computer services, the spectre of one giant hangs
over the market. America Online, Prodigy and Compuserve all crow about their
products and growth, but each lives in fear of the day Microsoft Corp.
arrives.
And when The Microsoft Network arrives, probably this fall, Digital will be
there to make sure the computers, wires and help desk are working properly.
Digital beat a strong field of competitors for the five-year contract to
provide technical support for The Microsoft Network. Competitors were
reported to include Andersen Consulting, Electronic Data Systems and Sequent.
"It was big news that Digital won, because nobody expected them to win,"
says Christine Ferrusi Ross, an industry analyst with Dataquest in
Westborough. "Digital isn't really seen as one of the key players in this
business. They're huge, but they're not perceived as being right up there
front and center."
The win might indicate that Digital can expand its services and support
business - a huge and often underappreciated part of the company.
Worldwide, the market is booming for advice on how to buy computers and
install them, and for support contracts like the one Digital won from
Microsoft. According to Dataquest, the market reached $75 billion last year
and will top $130 billion by 1998. "This whole market has the potential to
make tons of money," says Ross.
Digital's services unit accounted for a sizable $5 billion of its $13.5
billion in sales last year.
The company already runs the entire information services network at Scott
Paper's large manufacturing plant in Everett, Wash. And it manages computers
involved in manufacturing and engineering at several General Electric plants.
Ross thinks Digital has a chance to build this business. "The market isn't
saturated yet, and there's no one big player or standard, so a lot can
happen," she says. "They have an opportunity."
Multia slices though networks' boundaries
The Multia may be the world's first multilingual personal computer.
The pizza-box-sized Multia MultiClient Desktop enables users to tap into
machines that run different types of incompatible software, including
Microsoft's Windows NT software, Unix and software for big IBM mainframes.
[Photo. Caption: Digital CEO Robert Palmer says there's a backlog of orders
for the laptop computer.]
"It is, if you will, the ultimate terminal," says Christ, of the components
division. "It can move data back and forth across boundaries."
Launched in November, the Multia is Digital's answer to the soaring costs of
maintaining PC networks. Typically, it is difficult to link computers that
run on different software into a single network. Each machine has to be
outfitted with cumbersome layers of intermediary software, which increases the
risk of system problems and makes it necessary to service each machine
individually when problems arise or when new software us added. It also
hampers performance.
Multias, by contrast, can be maintained centrally from the network's main
"server" computer. And they vastly outperform regular personal computers on a
network.
"If you're trying to cut costs and keep things simple, it's real
appealing," says Michael Goulde, a senior consultant with the Patricia Seybold
Group in Boston. He says maintaining each PC on a conventional network can
cost upward of $5,000 a year. With a Multia, which costs $3,500 to $6,000,
the maintenance cost is far lower.
Multia won Byte magazine's award for best computer system introduced at
Comdex, the giant industry trade show last fall. But Digital is still looking
to clinch a major sales deal. "Were hoping in the next 12 months to sell a
couple of hundred thousand of these machines," says Nina Hargus, Multia
business manager.
Digital takes printer fight to shelves of superstores
If you knew Digital made printers, you were probably a Digital computer
customer.
That was the old rap on the computer maker. Now, Digital's printer division
is going public and targeting nontraditional customers, especially in the home
and small-business markets.
Hewlett Packard Co. last year controlled about 60 percent of the $2 billion
inkjet printer market in North America. Digital is playing catchup. And
while its is unlikely to rival Hewlett Packard any time soon, analysts say
Digital is making the right moves, wining shelf space for its inkjet and laser
models at more than 2,400 stores nationwide, including CompUSA and Circuit
City.
"If you look at some of our recent printers we've announced, they're priced
more aggressively than HP and offer more functionality and performance than
HP," Christ says. "We're telling people very aggressively, 'Hey, look at
us.'"
At least some industry watchers think the market dynamics are in Digital's
favor. Digital is in the retail stores now, able to reach the fastest
growing segment of the market, says John Goetz, an industry analyst with
market researcher Dataquest. He gives the company credit for offering new
low-priced products. "Digital has brand-name recognition that a lot of other
companies wish they had," he adds.
So far, the numbers look good. Digital's printer sales have more than
doubled in the past year.
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