Digital Equipment blamed its recent shift away from the indirect channel for a disastrous first quarter loss. The company, which has made losses in five of the past six years, shocked analysts with a Q1 loss of $65.9 million, or 48 cents a share, three times the figure predicted by Wall Street.
Analysts had expected Digital to make a loss of about 14 cents a share, with even the most pessimistic only forecasting 30 cents. Revenues fell 11 per cent to $2.91 billion, about $200 million below analyst forecasts.
Chairman Bob Palmer said the disappointing figures were largely down to Digital?s U-turn in its channel strategy, implemented at the start of the quarter. This increased the number of customers the company sells to directly, swinging the balance of power away from the resellers - a reversal of the decision made two years earlier to deal with all but a handful of accounts through partners. ?While that change was necessary, it got a historically slow quarter off to an even more sluggish start,? said Palmer.
The change in sales model was made to reduce conflict between direct and indirect channels and to improve customer service, said Palmer. ?We are concentrating on substantive, permanent improvement, not quick fixes.? Digital recently put its worldwide salesforce under a single management in an attempt to improve responsiveness and account coverage.
Despite the overall gloom, sales of the Alpha range did rise slightly, up four per cent. Total product revenue fell from $1.82 billion to $1.52 billion year on year, while gross margin slipped from 32.2 to 31.3 per cent. Service revenue fell from $1.45 to $1.39 billion.
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