As Digital Equipment nears the end of another fiscal year unable to assure investors it will make a profit, shareholders and executives seem to be pulling in opposite directions. However, as both go public with their strategies for turning the company around, they agree on one thing - NT is the future, which has left many users concerned that their investments in other Digital technologies, notably networking, will be swept aside.
The Digital board claims the company's close alliance with Microsoft makes it best placed of all the server makers to make money from the growing NT boom. Many major shareholders believe this too, but some are saying the strategy will only bloom under new ownership. Institutional shareholders in control of 40 per cent of Digital stock have convened a meeting in New York this week to discuss the poor share performance and likelihood of a corporate turnaround. One issue at the forefront of their mind is an acquisition deal, or a break-up of the company.
Herbert Denton, a shareholder activist well known for ringleading protests against IT companies' boards, has organised the meeting. Referring to the recently reported news that Compaq came close to buying Digital for about $60 a share ($9-10 billion) - a deal Digital rejected - he commented to the Silicon Valley newspaper, 'San Jose Mercury News': "If Compaq thinks DEC is worth $60 and you look at the break-up value of DEC in the high $60s, you know, the issues facing this company need to be understood by the investment community."
One shareholder said: "That Compaq deal was an opportunity missed. Compaq is well placed to take Digital's NT server business and really make it a market leader."
There is strong feeling among many investors that the NT crown jewel should be spun off and allowed to compete without propping up other businesses including older Digital platforms. Even Unix is out of favour with some, both in the shareholder community and within Digital's own managers, raising speculation that it will de-focus rapidly on Unix and become, in effect, an NT company.
Robert Bismuth, vice president for corporate alliances, said last week that the five-year Microsoft relationship was the key to Digital's financial recovery. One of the architects of that 1992 deal, he said the partnership would expand the NT market massively, leveraging ALpha's power. For instance, he claimed Digital sold half the computers sold in the past year to power Microsoft Exchange.
While such a strategy might enable Digital, at last, to find a mass market for its powerful Alpha processor, as NT moves into more heavy duty roles as a corporate and Web server system, it will not just be Unix and the old VMS operating system that could be sidelined.
The networking business is one of Digital's most consistently profitable. However, its previously high profile has been overshadowed by NT. The days when Digital saw networking as the cornerstone of its growth strategy, and even coined the slogan 'The network is the computer', are gone. One option, say the discontented shareholders, is to maximise the returns on that business by spinning it off, or selling it to a larger competitor such as Cisco.
For users who have built their corporate system around VAX servers and Digital networking - and one of the chief attractions of DEC to shareholders and potential buyers is that there is a substantial installed base left - the chief worry is not the future ownership of the products but whether they will continue to be enhanced, supported and marketed. If the abortive Compaq merger plan is anything to go by, a takeover of Digital would not include these businesses and users could face being relegated to a backwater maintenance company.
The danger for Digital is that it will put all its eggs in an NT basket that is also targeted by just about every other server maker in the industry. The fact remains that, in its five-year relationship with the Windows giant, it has only seen one year in profit, while Microsoft has seen five years running of record profits. "What does that tell you about who's getting most out of this deal?" asked one analyst who supports the idea of Digital being sold to an NT specialist. Failing that though, the company may well need to fall back on businesses, such as networking, that have served it well in the past.
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