With a top executive's departure and more layoffs on the horizon, Digital is simply continuing on its seven-year road to recovery, according to the company's CEO.
Yesterday saw the resignation of Enrico Pesatori, vice-president as well as general manager of Digital's computer systems division, which included the company's ailing PC business. Today, Digital has announced that its fourth-quarter revenues will sag far below expectations and that it plans to cut 7000 jobs over the next 12 months, out of a total worldwide workforce of 60,900.
Pesatori is refusing to be interviewed, but Digital head Robert Palmer says the decision to resign was Pesatori's own.
DEC officials blame the financial slump on the PC business, where Digital's bloated channel inventory has dragged it down, as well as on weak European sales. But they insist that Digital's fundamental business strategy -- to emphasize 64-bit computing, Windows NT and the Internet -- is strong and that the company will recover from the latest upsets by the end of this calendar year.
"Digital did not get into trouble in a short time, and it will not get out of trouble in a short time," says Palmer, who has presided over the company's turnaround efforts since 1992 and who will fill Pesatori's role until a replacement is named. "Our performance this quarter shows that we still have some significant business issues to resolve, and we will continue to do that."
Some analysts are terming the latest shakeup a blip on the turnaround radar, not as serious as past layoffs and management changes at the Maynard, Massachusetts-based company, which had 127,000 employees at its 1989 peak. Still, it's clear that the company is not over the hump yet, especially compared with competitors such as Hewlett-Packard that are seeing multibillion dollar growth each year.
"A company like Hewlett-Packard is not suffering this same kind of glitch," says Jonathan Eunice, analyst at Illuminata in Nashua, New Hampshire. "In comparison, Digital's momentum isn't building how it should be."
For the fourth quarter, which ended June 29, Digital will take a US$475 million charge against earnings, to cover the cost of the layoffs and facility consolidations worldwide, officials say. The layoffs will be spread throughout the company's divisions, although the bulk will come in the US and Europe, Digital's primary markets, Palmer says.
Digital will report its quarterly earnings on July 30.
The company is explaining the slump this way: On the PC side, Digital's large channel inventory means it has been hurt worse than its competitors have been by market price drops. And in Europe, where Digital took in 45% of its $13.8 billion revenues last year, an economic downturn, fluctuations in the US dollar, and missteps in Digital's indirect sales force strategy have resulted in revenues US$150 million lower than expectations.
Despite the PC lag, the company is seeing "double-digit growth" in its core business areas, such as its Alpha architecture machines, its Windows NT-related business, its storage business and its networking products, Palmer says.