Conference 7.286::digital

    A number of economists have started using the term "Sliding recession"
    to denote a phenomenon that has occurred throughout the 80's.  Instead
    of the entire economy making a downturn, different industries have
    fallen into "recession" at different points resulting in pain for that
    industry segment but an overall steady to strong economy.

    My thoughts about why the computer industry is soft, while the economy
    seems to be doing ok: 
                      
    1) Customers are confused by the rapid advancement in technology.
    They're wondering whether to implement a solution now, or wait for
    something better? 
    
    2) Customers are more computer literate now with the proliferation of
    PC's and other systems. They have found that integration is still a
    difficult dream to implement. They have been through a fair amount of
    pain trying to implement solutions that did not result in the desired
    results and are reluctant to do it again. 
    
    3) The rapid advance in hardware technology, which has brought the
    price of the same performance way down, means that you have to sell *a
    lot* more computers to reach the same dollar volume of sales. Customers
    are having problems using up the additional compute capacity that these
    faster machines offer. Eventually they will, but it will take some time
    for them to find and implement new applications to use up this
    capacity. 
    
    4) At the same time that hardware costs have been coming down, software
    costs have been going up, and software and network support costs have
    been going up faster. Training costs have also been going up. We may be
    a software company, as Ken says, but a software sale is much harder
    than a hardware sale. These added costs are becoming a bigger part of
    the decision process and extend the sales cycle. 
    
    5) The industry is in a state of consolidation, which further confuses
    the customers. Which companies will survive? Which standards will be
    the real ones? What about Unix? What about OSF and Posix? OS/2 or
    MSDOS? Microchannel or not? 
    
    6) Many customers were scared by the stock market crash a couple of
    years ago. They became much more cautious in capital expenditures, and
    more conservative in many financial decisions. I think this has
    contributed to the health of the economy, but has hurt the sales of big
    ticket items. 

    The good news is that Digital is positioned with some very strong
    products, a good reputation, a commitment to standards, and lots of
    good people. If we play our cards right, we will come out of this phase
    of the market evolution in good shape. 
        
    Rich
    

    I'll try to keep this simple:
    
         1 - Customers are CONCERNED as they look at computer industry
    losses, lay-offs, reorg's, takeovers, and just plain wipeouts.
    
         2 - To compound the above, they are CONFUSED by technology jumps,
    networks, PC's, work stations, open systems, standards, etc.  They're
    holding off on purchase decisions until they get it all figured out.
    Lot's of jobs are on the line.
    
         3 - Finally, where we (and plenty others as well) should have been
    totally prepared to deal with their concerns and confusion, we were
    even more confused and poorly prepared to help our customers.
    
    What will happen?  They/we/them will figure it all out, and I see
    another big surge in business starting on about 12-18 months.  We
    will be in an even stronger second place than ever if we don't shoot
    ourselves in the foot in the meantime panicking over short-term
    performance, or choke while licking Wall Street's "boots".

    
    There have been several articles released lately indicating that the 
    White House Budget Office's government statisticians are
    unable to track significant changes in the economy and their effect
    on business and people.
                                                                
    The FED last spring started to lower interest rates based on
    information gathered from economic indicators, all of those indicators
    were revised upward later.  This means that the FED has been making
    policy based on erroneous data.  Inflation may not be under control
    afterall.  Interest rates may have to be raised again.  The stock
    market surge was based (in part) on a commonly held belief that
    interest rates were in decline... that may not be the case anymore.
    
    In short, it appears as if no one really knows what is going on
    with the economy.  The indicators have proven to be unreliable,
    the circumstances are unprecedented (for example: huge corporate debt 
    incurred through leveraged buyouts, the high federal deficit,
    unreliable economic indicators, large amounts of private debt, junk
    bonds, the impact of foreign investors and the stability of the
    foreign markets upon world markets).
            
    Computers are a part of the future, no question about that.  I feel
    the industry is wise to batten down the hatches and prepare for
    the worst.  After the longest economic expansion in history (built
    mainly on debt) we may be in for a global slowdown of immense
    proportion.  The Wall Street people may be fooling themselves,
    afterall their commissions are based on a strong economy.  Wishful
    thinking can sustain a self-fulfilling prophesy for only so long.
                   
    Ken always had good instincts about direction and long range planning.
    If anybody can make it through, he can.  The rest of us can always
    prepare for the worst and hope for the best... can't go wrong that
    way_:-).
    
    Mary
        

    I've been trying to figure out exactly which American industries *are*
    strong.  The high tech is definitely weak.  Farming is in the pits.
    Heavy industry has not recovered from the overseas competition.  The
    investment community seems to be preoccupied with buyouts, which
    generate no real wealth.  The banking industry is in deep weeds. 
    Airlines are consolidating.  Where are the jobs?  All I see is layoffs
    in the papers.  We can't all go work at McDonalds!  Any thoughts on
    what American industries are strong these days?
    
    Ray

    That's easy -- the government and defense contractors.

    Other strong sectors: aerospace (commercial as well as defense),
    entertainment (very strong), some agriculture, primary metals,
    paper...
    
    			-John Bishop    

    -Telecommunications
    -Health Care
    -Housing (during the summer -- expected to slow again this month)
    -Service industries
    -Consumer goods are up and down 
    -Personal income is up and growth seems strong
    -The savings rate is up (finally)
    
    -Don-

	We're getting a bit far afield from the chater of this conference.
	Have people looked at NODEMO::MARKETING or some other conference to
	carry on this discussion?

			Alfred - co-moderator HUMAN::DIGITAL

    
    	An example of why the profits are just not as easy to come by:
    
    	DEC sells service contracts of various sorts.  A software service
    	contract on a smaller VAX simply cannot sell for the same price
    	as one on a larger one because of the cost of that contract
    	relative to the price of the VAX they bought.  (Who wants to spend
    	more for a service contract than what they paid for the product?)
    
    	But that smaller-VAX customer has all the same questions as a
    	larger-VAX user.  The availability of service at the Customer
    	Support Center is equal for both the smaller-VAX user (who paid 
    	less for his contract) and the larger-VAX user.  Therefore the
    	margin of income on that service contract is less.  And it is
    	not unlikely that the smaller-VAX user is from a smaller shop
    	with less technical resources internally, so that they may be more
    	apt to use the service contract more with calls to the CSC.
    
    	Likewise I'd expect that the cost of a software package may be
    	less for use on a smaller VAX than on a larger one.  
    
    	The business is changing.
    
    	Joe Oppelt

    Along the same vein as .10...
    
    Also, our desktop systems simply don't have the big margins, due
    to the intense competition in that market.
    
    What're we selling a lot of?    Workstations.
    What aren't we selling a lot?   Big VAX systems.
    
    When more of your business is low-margin business, obviously your
    company margin is going to suffer.
    
    -Don-

    The margins on our workstations are not small.  They are (or at least
    were) non-existent.  In FY89 I believe we sold over a billion bucks
    worth and lost about 5% on the deal.  The reason is that our corporate
    overhead structure doesn't match the work station model.
    
    Big (read high profit) systems??  They are falling by the wayside.
    
    As a matter of fact, I think we lost money on our total hardware
    offering, with the possible exception of the 6000's

    re: .12
    
    To add some ammunition to your statement regarding workstation
    profitability:
    
    I was with a group of field managers today and learned that a major
    piece of business we were chasing was very significant to us. It became
    apparent that cost was going to be the primary consideration. Several
    "trial ballons" on cost were floated to determine the customer's price
    sensitivity. In the end, Digital decided to try to buy the business
    because of the criticality of winning this workstations sale. We
    discounted our systems by about 75%. 
    
    We lost.
    
    The competition discounted theirs 80%.
    
    The only word to describe major workstations sales these days is
    "cutthroat".
    
    /se