This may be the decade of the PC and Internet, but one of its surprises is that some of the minicomputer makers are still hanging on in there. The advent of open systems squeezed Digital, Data General and others out of the top spot and there were several casualties in the midrange. But those surviving, though often shadows of their former selves, are busily reinventing themselves. Digital took the risk of developing the Alpha processor, HP found salvation in Unix and network management - but what of Data General?
Last week Data General (DG) came out of hiding and showed off its new generation of systems based on Numa (Non-Uniform Memory Architecture), which is heralded as the latest, and most commercial, iteration of symmetric multiprocessing.
The company has only recently felt comfortable enough to come back into the limelight. It took a very hard knock during the early 1990s. At the height of its glory, its 18,000-strong workforce focused on a range of products far broader than its core minicomputer business, from telecomms switches to PCs and memory chips. Today, only 6,000 employees remain, all but two of its 11 manufacturing facilities have been shut down and it structure has been slimmed down to four business units concentrating on Internet devices, storage, Numa technology and Intel servers.
?We?ve cut the heck out of our costs and and kept cash under control,? said DG president and chief executive, Ron Skates. It is only now that he is happy with DG?s cash situation - the cost cutting programme took four and a half years (?we went through hell?) and Skates admits he would still cut staff numbers to save money. ?We would take headcount out anywhere to save money. But we are hiring at the same time - for instance, in research and development,? he said.
Cost cutting measures included broadening DG's indirect sales channel, withdrawing from markets such as memory and telecomms switching plus buying in components that it used to build itself, such as system cabinets. Such moves have helped DG, after dark periods of profit losses, to post consecutive revenue increases and Morgan Stanley analyst Steve Milunovich recently published a report on the company entitled 'Data General: A Full Year in The Black'.
Net income for its fourth quarter, which ended September 1996, leapt 560 per cent to $9.9 million from last year?s figure of $1.5 million. For the same quarter, revenues increased by 11 per cent, largely due to DG?s Intel-based Aviion line of servers. For its full year, net income was $28 million compared to a loss of $39.9 million for the whole of 1995. Morgan Stanley estimates DG will see a complete turnaround by posting 1997 net income of $39.6 million.
Though Aviion contributed around $128 million of product sales in the fourth quarter, it could just as easily have caused the demise of DG. Since its launch in 1989 until late last year, Aviion was based on Motorola?s 88000 Risc processor - a decision that harmed the company. There were few Motorola-supported applications around and Motorola failed to get enough hardware suppliers to switch to the chip.
DG decided to change tack. ?We looked at PowerPC, Alpha and others. People thought we would chose PowerPC because of the Motorola connection but we chose Intel [Pentium Pro], which gives us twice the order of magnitude over other processors,? said David Ellenberger, vice president of corporate marketing.
The company introduced its first Intel-based system last autumn running SCO Unix, DG/UX and NT, launching just as Intel introduced Pentium Pro and coming head to head with Compaq. Compaq owns around 70 per cent of the Intel-based symmetric multiprocessing systems market.
Despite the more formidable contenders, changing to Intel has been a life saver for DG. Today Intel-based Aviion systems represent 40 per cent of all Aviion revenues and resulted in the range posting its highest quarterly revenue total ever, explained Skates.
Morgan Stanley estimates DG sales will increase by 15 per cent next year, partly driven by Aviion boxes and partly by the Numa systems, which will be generally available in the spring. Numa takes SMP a step further than current commercial SMP technologies by increasing scalability, in terms of memory and processors, and allowing any processor to access any piece of memory, invisibly to the application. Sequent is also working on Numa systems.
DG is expected to ship eight and 16-processor systems before moving on to 32-processor versions by the end of 1997. However, the scalability message does not impress everybody. IDC systems analyst, Jay Bretzmann, believes Numa is great for users who want buy an Intel-based entry level system and grow to an eight-way machine for an attractive price/performance ratio, but he doesn?t believe it would be useful for people looking for more power. ?I?m not a great advocate of 16 and 32 Numa systems because it requires the operating system and application to be aware there is memory partitioning in the system,? said Bretzmann. Also the technology may not benefit older applications, he continued.
DG?s Ellenberger said 75 per cent of sales will be via OEMs and has already signed ICL, Dansk Natal Electronik, Daewoo and Unisys as partners. Apart from the markets that the OEMs will take Numa in to, Bretzmann believes it would be a platform for DG?s installed base to migrate to and would ?open doors which were previously closed to DG, but it won?t be a floodgate?.
OEMs are key to DG. A hefty 80 per cent of its Clariion storage systems sales are made through OEMs, key ones being HP, Bull, Sun and IBM. DG entered the storage fray in 1992 with a well-respected Raid implementation that helped put the company back on the map. Clariion is DG?s most successful business unit and was formed in 1992. Larry Hemmerich, vice president of this unit, is bullish about DG?s position in the storage market and believes it owns around 60 per cent of the OEM side of this business. ?If we can get all of the server manufacturers I?ll own 100 per cent of the market,? he said. Targets include NCR and IBM.
As part of this quest, Hemmerich?s team recently spent 50 per cent of its R&D budget developing products using fibre channel disk array technology, which will be available in January. The products are the culmination of two years? development work and will give customers access at 100Mbytes per second. Targeted markets include the telecomms sector and data warehouse users.
DG?s fourth business unit is Thiin Line, which makes a range of Internet devices for business and home users. For the home, the Thiin Line team has developed a multiuser ISDN server, which can be mounted next to the electricity generator in the basement to power Web-based services from PCs, NCs and home appliances. The company is talking to telecomm carriers to bring the product to market and expects them to be generally available in the spring.
IDC?s Bretzmann applauds the efforts of Thiin Line. ?I don?t think it has anything to lose here and it may provide DG with a market differentiator. However a bigger company may jump in if DG shows there is a market here,? said Bretzmann.
With all this activity in the four business units and a tentative return to financial healty, 1996 has been the year for DG to find its feet again. But what of 1997? Bretzmann believes the very fact that DG's products are similar to its competitors' opens opportunities as new customers can try them out without fear of lock in.
Skates says he wants the company to be known as a technology company so the natural thing would be to get out of selling direct and concentrate on dealing with OEMs, or spin off its divisions. Although Skates has repeatedly said he would like the company to continue with its current model, Bretzmann believes that if the opportunity of a DG takeover arose it would be sold off as a complete package. ?The opportunity may present itself but DG is happy with its corporate infrastructure and with the revenues it is commanding,? he said.
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