DEC’s New Line of Workstations Signals Rebound
In a computer industry increasingly dominated by the young and nimble, it’s easy to dismiss Digital Equipment Corp. as a lumbering giant long past its prime.
Yet the world’s second-largest computer company has proven remarkably resilient over its 34-year history, and in recent months DEC has come a long way in adjusting to the new realities of the computer industry.
On Tuesday, the Maynard, Mass.-based company introduced a line of low-priced computer workstations that demonstrates the company’s belated commitment to “open” computer systems that work with hardware and software from many different vendors.
Also, DEC recently cut prices and improved performance on its flagship VAX computers, improved its already-strong position in support and networking, and persuaded customers that it has finally come to grips with the reality that proprietary minicomputer systems--the company’s strength--will not get it very far in the future.
And sometime next year, DEC will begin rolling out a completely new computer design--code-named Alpha--that will eventually power everything from tiny “palmtop” computers to giant mainframes. Finally, after two years of painful restructuring that included its first-ever layoffs, DEC’s 65-year-old chairman, Ken Olsen, will have a chance to prove that the critics calling for his resignation have again misjudged his ability to play for the long term.
“Olsen is always a genius when things are going well and over-the-hill when they’re not,” said Jean Orr of Labe & Co.
To be sure, a lot of uncertainties remain. Senior Vice President John F. Smith--the No. 2 man at the company--said cost-cutting will continue. Though the work force has been reduced to 115,000 from 138,000, Smith said the company intends to cut the number of jobs to under 100,000.
In addition, the computer business remains dismal. “We feel pretty good about what we’ve done internally,” Smith said in an interview. “But in terms of what’s happening in the industry and the economy, we do not feel comfortable at all. The signals are that it could get worse before it gets better.”
Even some analysts who give the company points for taking the right steps say a strong rebound is not yet assured. “The worst is coming to an end, but it’s really Alpha that will get them back into a competitive mode,” said Robert Herwick, an analyst at Hambrecht & Quist.
The new workstations introduced Tuesday, including one that sells for less than $4,000, should help DEC regain ground in one of the industry’s few remaining growth markets. While workstations have traditionally been used by engineers--long a key market segment for DEC--they are gaining popularity among business customers seeking more power than a PC can provide.
The DEC machines are designed to comply with the specifications of the Advanced Computing Environment, a consortium of more than 200 companies that hopes to develop a new standard for advanced desktop computers. They use a computer-on-a-chip from Mips Computer Corp., and can be upgraded to incorporate the new Mips chip that’s expected next year.
As will other ACE-compatible machines, the DEC workstations will eventually offer two options for the software operating system that controls their basic functions: a version of Unix and a new operating system from Microsoft called Windows NT that was demonstrated Tuesday but will not be on the market until late next year.
In addition, DEC introduced new service programs that emphasize the company’s ability to build and support multivendor computer networks. DEC increasingly relies on service and software rather than hardware for its profits, and analysts say it’s well-positioned in this area.
While the new workstations should help Digital compete with market leader Sun Microsystems, analysts said Sun might respond with price cuts, and Hewlett-Packard and IBM are both expected to roll out low-end workstations next year.
And the Alpha initiative casts something of a shadow over DEC’s Mips-based products. Officially, Mips is for the low-end and Alpha is for more powerful machines, but many suspect that Alpha may ultimately supplant Mips, which has been in financial trouble.
Smith did little to dampen that idea. “If for some reason Mips doesn’t remain a world-class” design, than Alpha might move in at the low end as well, he said.
This conflict points out a basic challenge that DEC still faces: migrating a huge base of customers away from proprietary VAX minicomputers and onto the Alpha design and the Unix operating system.
“We’ve started to see a clear picture of where they’re going, instead of a confused mess,” said Laura Segervall, an analyst with Dataquest. “But it will still be a few years before they’re solid.”
