Digital posts $66 million loss -BOSTON - full report

Digital Equipment Corp. said Tuesday it posted a deeper-than-expected loss of $66 million in its fiscal first quarter after a difficult...

Digital Equipment Corp. said Tuesday it posted a deeper-than-expected loss of $66 million in its fiscal first quarter after a difficult worldwide realignment of its sales force hurt its business.

The Maynard, Mass.-based computer manufacturer said it lost $65.9 million, or 48 cents a share, for the three months ended Sept. 30, compared with a profit of $48.2 million, or 26 cents a share, in the same period a year ago.

The per-share loss was more than three times the 14 cents that Wall Street was expecting, according to First Call, which tracks analysts' estimates.

Digital's stock plunged $5.75 to $28.625 in afternoon trading on the New York Stock Exchange.

``The sales force changes took longer, and were more difficult to implement and more distracting to the sales force then were planned,'' Chairman Robert Palmer told reporters during a conference call.

``As a result, our selling ability was temporarily reduced, and product revenues were significantly affected,'' he said.

The sales realignment resulted in new management and sales representatives taking new accounts, but the changes began to show positive results toward the end of the quarter, he said.

``We expect as a result that we will return to profitability in the December (second) quarter as the sales pick up and we get this thing behind us,'' Palmer said.

The second consecutive quarterly loss, following six quarters of profits, was a clear blow to Digital's turnaround hopes and called into question Palmer's future.

Analysts said that, if Digitial failed to turn a profit for the fiscal second quarter, Palmer, who is also president and chief executive officer, may be out.

``If that (profit) does not happen, I think the level of support that Mr. Palmer currenly enjoys from the board of directors is going to evaporate,'' said Terry Shannon, editor of the Ashland, Mass.-based newsletter ``Shannon Knows DEC.''

Palmer said he has the continued support of the board and the company has a capable management team.

Since Palmer restructured the company into business units, Digital's profitability excluding restructuring charges has improved by more than $1 billion and the balance sheet has strengthened, he said.

``This is a difficult turnaround,'' he said. ``We've been working through a lot of previous problems, but we remain committed.''

Chief Financial Officer Vincent Mullarkey said fluctuations in the dollar resulted in a loss of more than $70 million for the first quarter.

``Had the currency impact year-over-year not occurred, we would essentially have been break even for the quarter,'' Mullarkey said.

During the fiscal first quarter sales of Digital's fast-performing Alpha computer systems grew at only 4 percent as a direct result of the changes and realignments in its sales organization.

``I'm pretty confident that as we get stable with the sales force, we'll see the Alpha revenues continue to grow again,'' Palmer said.

Mullarkey said the company made solid progress in the management of gross margins and operating expenses, despite its revenue shortfall. Total operating expenses were essentially unchanged at $900 million in the quarter.

Digital said the performance of its personal computer business continued to improve and the unit made good progress toward breaking even or turning a profit by the end of the second quarter.

Industry-wide price cuts in personal computers earlier this year and an inventory build-up hurt Digital's personal computer unit in its fourth quarter.

Enrico Pesatori, head of the personal computer unit and heir apparent to Palmer, resigned suddenly in early July, citing distribution problems.

The company said it ended the quarter with about 57,000 employees, a reduction of 2,100 from the end of fiscal 1996. Personnel levels are expected to fall further to 53,000 at the end of the fiscal year, Palmer said.

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