Newspaper article The Christian Science Monitor

Digital Downsizes, Forges Alliance

Newspaper article The Christian Science Monitor

Digital Downsizes, Forges Alliance

Article excerpt

A FEW weeks ago, after a breakfast meeting of business leaders here, Digital Equipment Corporation founder and president Kenneth Olsen was asked a predictable question:

What role would DEC's new Alpha chip, which is much faster than competing microprocessors, play in the company's future?

Mr. Olsen's answer was unexpected: "It could kill us." He went on to explain that while the engineering feat opened doors of opportunity for the company, "people don't buy technology, they buy solutions."

The comment reveals Olsen's understanding of challenges facing the nation's second-largest computer company.

With rapid technological change and competition shaking up the industry, Digital must show it can still meet customer needs. After steady growth in the early 1980s based on its popular VAX line of minicomputers, Digital, like other providers of high-end systems, was hit by the personal-computer revolution that has brought increasing power to desktop machines at ever-lower prices.

Both Digital and the No. 1 computermaker, International Business Machines Corporation, have been downsizing aggressively.

"How do these really large companies adapt to changing markets and technologies," asks William Bluestein, a senior analyst at Forrester Research, in Cambridge, Mass. "Both of them have been flailing about."

For both giants, the answer lies in cutting payrolls, greater independence of business units within the company, and spinning off businesses that aren't central to their long-term strategy, Mr. Bluestein says. But where IBM reported strong profits in the most recent quarter, DEC reported an unexpectedly high loss of $294 million. Digital's stock sagged to $48 a share from around $65 when the Alpha chip was announced in January.

Bluestein attributes the red ink in part to Digital's early announcement of Alpha, which will not become available in volume until late this year. …

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