Conference 7.286::digital

    
    This is not very surprising.  Consider the fact that with all the
    downsizing (a term that seems to combine the aspects of both being
    laid off and of being fired.) we have lost sight of the fact
    that Digital is attempting to transition it's main computer line
    from VAX to ALPHA.
    
    From everything that I have read we should have expected to pay
    approximatly 1/3 of one years revenue to accomplish this feat.
    That would come to approximatly 5 billion dollars.  Since we have
    eaten up 2.4 billion in cash reserves I would expect that at the
    end of the transition period we would be about 2.6 billion in
    debt.  A debt to revenue ratio of 2.6 to 15 or about 17% is
    well within the limits of a healthy debt for a dividend paying
    stock.
    
    The catch is that when we begin making a profit we will have
    to start paying dividends.
    
    This is not such a bad trade off --- Remember Adam Osbourne?
    
    Well if you don't he was a man who created Osbourne Computers
    and then went bankrupt when a replacement computer was late
    and had been announced.  An analysis of why he failed showed that
    he did not allocate any capital to cover sales losses and additional
    marketing for the transition.  
    
    Difference is that Digital can and has.
    
    
    
    
    

    Good Question.....
    
    Admin has been informed that they will be assisting Accounts Receivable
    (Collections) in calling customers regarding invoices at 17-21 days
    old.  Since our standard terms are NET 30, what are they suppose to
    say?  Can you pay early? NOT.  Is there a problem? YES...etc.  All this
    effort to "improve" cash flow.
    
    I ask the same question.  Where 'dit go? 

	Are you sure we don't have the reserves?

	Putting loads of money on long term, high rate deposit, and borrowing
	at short term , lower interest, could be a better move.

	The lower fixed 2-5 year mortgages in the UK are being financed by
	getting the relatively cheap money on the money markets.
	
	These mortgages are cheaper than the floating mortgages, which rely 
	on the investors investing, and paying them a relatively higher 
	interest rate.

	Heather

    Whichever way you look at it, we're borrowing money for the first time
    in our history. 
    
    We got through $420 million in Q1 from the reserves, so I guess the
    majority of the rest has gone as well.
    
    I know that other companies in this industry are in debt for an awful
    lot more than we are - perhaps they've gone through the same sort of
    situation as we are undergoing at the moment only they did it a few
    years back.
    
    Dave
    

We still have large reserves, and have an amazingly low long-term debt for
a company our size.  The opportunity is right for Digital to raise a lot of
cash by borrowing at record low interest rates.  Seems like good business
sense to me.

				Steve

>    Whichever way you look at it, we're borrowing money for the first time
>    in our history. 

    Not true. We've always borrowed money. Just look at past annual
    reports. We may, however, have a little less cash on hand than in
    the recent past and a little more outstanding debt. But I doubt that
    means we have no money in the "bank" or that we haven't borrowed more
    before.

    		Alfred

    RE:.0
    
    	The $880m still exists but DEC wanted to have $1.3b as a cash
    reserve. They borrowed $750m, put $330m toward TFSO, and put the other
    $420m into the cash fund to bring it to $1.3b.
    
    						Thom...

    Well, if we forget about the borrowed money for a moment, the $880m
    was there at the end of September, but we had been losing it at a rate
    of @$4m/working day for Q1 (no writeoff this time so they couldn't hide
    the operating loss).  Using the same rate, and assuming ten weeks into
    Q2 now, at 5 days/week, means another $200m has been lopped off the
    cash reserves, or down around $680m.  We now owe $750m, so we're
    effectively in the hole.  We could borrow money and put it into cash,
    but that doesn't change the net difference any.

    
    I have heard that our accounts recievables don't get paid for 
    some 60-90 days on average.  This will bring in Billions
    if we can pull it in even 30 days.
    
    

    The article I read said we were borrowing the money to build a new chip
    plant to build alpha chips. It will cost $500 Million or some other big
    number to build. That was the reason given for the long term debt.
    

With interest rates as low as they are, its an excellent time to take on 
some long trem debt.  Digital, being a very conservative company, has not
always taken advantage of the financial leverage available to us, at very
reasonable rates, due to our excellent balance sheet.

I'm no financial guru, (nor do I play one on TV), but from the reports
that I've heard, Digital is very wise to borrow some capital at this point
in time.

Remember, the $xxxM that we have in liquid assets right now may actually
be earning more than the interest we would have to pay, post-taxes.

Bob

    It may seem like a great time to take on long term debt...
    
    Back in the glory days of the 80's, it also seemed like a good 
    idea to scoop up a couple of condos and maybe buy out a 
    competitor or two (leveraged, of course).
    
    Why take on the debt when you don't have to?
    
    Gary

    Here are the financial facts of life for Digital:

    (1) Digital needs cash.  In June 1991, there was  $1.9B in cash,
    in June 1992 $1.3B in cash, that's an average burn of $150M per quarter,
    but from June to September the burn was $456 million.  When you have
    only $881 million in cash, you don't have to be a Wall Street analyst
    to realize you have six months to live.

    The ignorance of the basic fact that Digital is at risk of being closed
    continues to astound me.

    (2) Digital is not "conservative".  Digital was a reckless spender and
    unwilling to recognize market changes that have been going on over a
    decade: the creation of the personal computer market and the decline of
    the "timesharing" minicomputer market.

    (3) Digital doesn't need to borrow "capital" it needs to borrow "cash".
    "Capital" in the form of manufacturing plants, inventories, and leases
    are capital Digital doesn't need.

    (4) re:.11 There is no way (at least none that is legal) where Digital
    could "invest" in other than the operations of Digital to obtain a
    higher rate of return that its cost of borrowing.  Are you suggesting
    that Digital follow the lead of Dell Computer and play in the foreign
    exchange markets?

                     

>>>    The ignorance of the basic fact that Digital is at risk of being closed
>>>    continues to astound me.

This is the problem in a nutshell.

Unfortunately, the managers themselves haven't received this message, and so
they aren't transmitting any dire messages themselves. Employees are actually
complaining that they might have to work harder in the future. Perish the
thought! 

Managers haven't received the message because not enough of them have been laid
off. A hand grenade (actually, a Scud missile) needs to be sent into the ranks
of the managers. When half of them have left the company, maybe the other half
will get the message that "something's gotta change, folks!" Until then, it's
business as usual. 

Vicki Meagher

    
    extracted note 2257.2 for a response:
    
    >    Good Question.....
    
>    Admin has been informed that they will be assisting Accounts Receivable
>    (Collections) in calling customers regarding invoices at 17-21 days
>    old.  Since our standard terms are NET 30, what are they suppose to
>    say?  Can you pay early? NOT.  Is there a problem? YES...etc.  All this
>    effort to "improve" cash flow.
    
>    I ask the same question.  Where 'dit go? 
    
    Maybe it's nit-picking here, but "net 30" terms only apply to hardware
    & distributed software. Maintenance agreement terms are "due upon
    receipt".  I heard a figure once that dropping only **1 day** from our
    DSO (Days Sales Outstanding, i.e. accounts receivable) would drop the
    somewhat incredible figure of 15 million dollars directly to the
    bottom line.
    
    While I realize that times are tough, hey, we've got to make customers
    understand that Digital is not going to put up with non- and
    late-payment of bills.  Problem is, if we cancel a maintenance
    agreement AFTER it's expired or into the term due to non-payment, we're
    not only out the monies that would have been collected, but also the
    dollars that it cost to service any gear in the meantime. Kind of a
    round-robin, since you can't go back and bill T&M for services
    rendered if the customer won't pay anyway!
    
    IMHO, it seem that Digital as a corporation needs to get a bit tougher
    on these companies that are continually late. Only thing is, we're told
    "be nice, we need to keep our customers happy", but the ship is slowly
    sinking!
    
    <flame off, stepping down from soapbox>
    
    John

	In terms of making people work harder, it's silly to ask people to
	work harder.  It's silly to ask people to work long overtime.
	If people are being asked to do these two things, there is something
	wrong with management and the process.  The most productive work day
	is probably about 6 hours.  If people are sitting around reading notes,
	and told to work harder, they will just read notes harder ;-) .  This
	is a management failure, to fail to keep people deployed.
	
	People can be trained to work in a more intelligent manner.
	Six Sigma, not a process in itself, can leverage the application of
	formal software life cycle processes by some of our old hacker
	consulting engineers; people can be trained in modern, ANSI, portable
	C (and throw away K&R I) and structured or OO analysis, design, and 
	implementation.  This can make s/w more productive.
tom

Motivated employees are more productive than demotivated employees.

Teams with leaders accomplish more than teams with managers.

Companies with a strategy will achieve more than companies without one.

Success for Digital will not occur until morale improves.

Morale will not improve for free.

Management will not spend money to improve morale.

Therefore, morale will not improve.

Therefore Digital will not succeed.

QED

    .17

    hi Bob, about this line:

    >Morale will not improve for free.

    not sure what you mean by it, is it like you mean salaries increase
    or bounces or something like that ? i was not sure what you refer to.

    thank you,
    /nasser

    IMVHO:
    
    The problem of DSO ~3 times the industry average, coupled with a very
    high AR is an old one for Digital, and does NOT exist because our customers
    are taking us for a ride nor because the Finance folks are not doing
    their job.
    
    The direct cause of the DSO, and the indirect cause of the AR, is the 
    lack of ORGANIZED responsibility within Digital Sales, Admin., Mfg. and 
    Logistics to ensure that the customer gets what he ordered, ready to
    operate, at the agreed delivery date.
    
    That particular lack of organized responsibility is also the cause of 
    Digital's unenviable reputation of a company with whom most customers 
    would rather not do business.
    
    
    David

    RE: .14
    
    I don't know about your organization, but in ours there are no true
    "managers"
    
    The managers here (which I am one) are more often senior individual 
    contributors than anything else.  BTW, in our organization, there is
    today one manager between me and the senior vice president (Bill Demer) 
    and one level that I manage.   That ain't a hell of alot of managers...
    
    
    Often, when groups like ours go through a layoff process, the "indians" 
    are the ones who go because the managers are  more competant to do the
    jobs that were being done by individual contributors due to longer
    experience and a more rounded background.  
    
    Now, if Digital had real managers who did nothing but manage, this
    would be different, but I've never seen that in my 10 years here.
    
    
    -bill

    re: .20  "real managers vs. unreal managers"
    
   > Now, if Digital had real managers who did nothing but manage, this
   > would be different, but I've never seen that in my 10 years here.
    
    I agree with this statement, but probably not in the way you meant :-)
    
    Seriously, in the Field we have lots of managers who do nothing but
    "manage", and are not considered individual contributors in any sense
    of the word.  They don't do proposals, presentations, demos, write
    code, close sales, book orders, fix equipment, or clean bathrooms.
    
    They *do* attend Management meetings, District meetings, kickoff
    meetings, marketing meetings, task group meetings, project review
    meetings, Woods meetings, committee meetings, and COE.  And they
    sign expense reports and inspect your company car on occasion.
    
    Do we *really* work for the same company?
    
    Geoff
    
    [ P.S. Not to be totally negative, there are managers in the Field
      do great work, put in long hours, and try their best to be there
      for the workers.  But these people are the minority, and most of
      them are just as frustrated by the situation as the rest of us. ]

re: 21
<    Seriously, in the Field we have lots of managers who do nothing but
<   "manage", and are not considered individual contributors in any sense
<    of the word.  They don't do proposals, presentations, demos, write
<    code, close sales, book orders, fix equipment, or clean bathrooms.
    
<    They *do* attend Management meetings, District meetings, kickoff
<    meetings, marketing meetings, task group meetings, project review
<    meetings, Woods meetings, committee meetings, and COE.  And they
<    sign expense reports and inspect your company car on occasion.
    
<    Do we *really* work for the same company?
    
 uh.....yes Geoff we do....and besides meetings,  it usually takes 2 to sign 
 your review! ;-)  That's why you need at least 2 per I.C.!    

      Re .20
    
      Your opening sentence is ALMOST true for my job code...but to be
    truthful, I DO recall some really GOOD managers in my 12+ years with
    Digital...THREE to be exact! (Of course, I've had to work for dozens
    who didn't and don't have a good CLUE as to what goes on in the
    organization...)
      When I started at Digital, I also had the unique luxury of having
    only ONE level of management (one of the three, by the way) between
    me and the V.P. We got things done! 
      Now I have about 8 levels, depending on the day and time, and a HERD
    of "dotted-line" folks who know even less. We've "downsized" so many
    times it's hard to keep track...work hasn't diminished in the least.
    Communication and support has though...
    
      Re .17:
    
     Reminds me of the sign right outside my office:
    
                     !!ATTENTION ALL PERSONNEL!!
    
      THE DAILY BEATINGS WILL CONTINUE UNTIL MORALE IMPROVES AROUND HERE!
    
    
    JM