DEC’s Huge Loss Sends Shares Down
Showing no patience for its slow progress in reversing its fortunes, investors pummeled Digital Equipment Corp.’s stock Tuesday after the big computer maker posted an unexpectedly large loss for the summer.
The stock plunged 16% after the Maynard, Mass.-based company said it lost $66 million in the three months ended Sept. 28, compared with a $48-million profit a year earlier. Many analysts had forecast that DEC would lose $10 million to $20 million for the period.
Digital’s chief executive, Robert B. Palmer, said the results were “obviously not where we want them to be,” but emphasized at a news conference that DEC is undergoing a “multiyear process” to improve and that he is confident it will succeed.
Wall Street was not convinced, especially in light of the sparkling gains reported a day earlier by two other technology giants, International Business Machines Corp. and Microsoft Corp.
“The technology stocks all follow the [companies’] earnings forecasts closely, and when the disappointments are sharp, the stocks’ declines are sharp,” said analyst Jay Stevens at Dean Witter Reynolds Inc.
DEC’s stock plunged $5.375 a share, to $29 a share, in New York Stock Exchange composite trading as 6.3 million shares changed hands. Only eight months ago, DEC traded as high as $76.50 a share, so more than $7 billion of DEC’s market value has vanished since February.
To be sure, the stocks of several technology companies retreated Tuesday, including IBM, Compaq Computer Corp. and Sun Microsystems Inc., as the overall stock market pulled back. But in most of those cases, investors were taking profits from the stocks’ recent rallies.
DEC is another matter.
The company--long a fixture among the providers of complex, high-speed processing power to corporations, government agencies and universities--is not suffering a one-time dip but rather is struggling to shake off repeated losses and slipping market share.
DEC has lost $5.3 billion since 1991, including $433 million in its fiscal fourth quarter that ended June 29, when the company took a $492-million charge to cover yet another restructuring of its operations.
Industry watchers are growing concerned that as Digital fiddles, it’s permanently losing valuable market share to stronger players.
“When I look at Digital, I see third or fourth place in a lot of markets they participate in,” said John Coyle, an analyst at Standard & Poor’s Corp.
Digital’s gear, led by its Alpha AXP line of high-performance computers, continues to get generally high marks. But its line of personal computers has fared poorly, and the head of DEC’s PC unit quit in July--one day before DEC termed the group’s performance “unacceptable.”
DEC’s marketing and selling efforts are also wanting, even when it comes to the company’s well-regarded Alpha and VAX computer lines, analysts said. That’s evident by the fact that DEC’s fiscal 1996 revenue was virtually flat compared with three years ago.
Two goals of the restructuring announced in June were to bolster DEC’s sales effort and to slash its work force so that its costs would drop in step with its decline in sales. The result: DEC’s employment now stands at 57,000, down 4,500 from a year earlier.
Still, the way investors reacted to DEC’s poor quarter Tuesday says as much about Wall Street these days as it does about DEC, analysts said.
By many accounts it’s late in the current bull market, which gives many investors less reason to own stocks of companies such as DEC that are in the early stages of a rebound.
DEC’s Palmer said “there are no shortcuts” to make the company’s strategy work faster. But Coyle said many investors are saying: “We may be at the peak of the market, and do you want to invest in a company that’s two or three quarters away from turning it around?”
