Digital Equipment saw a 59 per cent drop in profits in its third quarter, partly due to the first ever fallback in sales of its flagship Alpha product.
Despite the gloom, the figures actually beat analysts' predictions for the quarter and earnings were up on the second quarter. However, the sharp decline in Alpha system sales - down by 13 per cent compared to the same period last year - is deeply concerning. The company has pinned its future on Alpha-based computers, which account for an estimated one-third of the company?s total product revenue, and this is the first time sales have declined since the architecture was introduced over four years ago.
Sales of Alpha-based computers were particularly bad in the Unix market. ?We are seeing a transition at the low end of the workstation market from Unix to NT. That is clearly happening,? said president Robert Palmer. ?Digital has been trying to prepare for that.? Vincent Mullarkey, Digital?s chief financial officer, said Alpha sales may also be suffering because the transition from VAX/VMS is slowing.
The company reported net income of $51 million, or 27 cents a share, for the quarter, down 59 per cent from net income of $124 million, or 74 cents a share, a year ago.
Product revenues were $1.8 billion for the quarter, down from $2 billion, and service revenues were $1.47 billion, down from $1.5 billion in the year-ago period.
?I am pleased we showed good earnings improvement over the second quarter,? said Palmer. ?Although revenue was not where we wanted it to be, it was within our expectations with progress in key strategic areas. I am particularly encouraged by the growth in Windows NT-based solutions and Internet products and services.?
Palmer said Digital's recently announced reorganisaton was designed to help increase demand for Alpha systems.
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