Digital's financials impress, but staying power uncertain

Digital's financials impress, but staying power uncertain

Buoyed by a fourth-quarter net income of $US124 million and fiscal year net income of $US141 million, Digital Equipment crowed over its financial state, even as industry observers digested the numbers a bit more cautiously.

"Our business model is clearly back on track," said Vin Mullarkey, Digital's vice-president and chief financial officer. "We're quite optimistic about our profit prospects over the next year."

Digital chairman Robert Palmer singled out Digital's PC business unit for praise, which he said was profitable for both the quarter and the year after losing money the previous year. "I'm very pleased with the excellent progress we've achieved in this business," Palmer said.

But analysts said that one relatively healthy quarter does not necessarily a healthy company make.

"To really have a turnaround, you have to have revenue growth," said Rob Enderle, an analyst with Giga Information Group in California. "It's way too early to start celebrating."

Revenue for the quarter was $US3.5 billion, down from $US3.7 billion for the fourth quarter last year, Digital officials said. For the year, revenue was $US13 billion, compared with $US14.6 billion for fiscal 1996, officials said.

Mullarkey attributed most of that decline in revenue to currency matters and divestiture of certain businesses, which he declined to specify. "Around 80 per cent of the decline is attributable to those two factors," Mullarkey said.

However, regardless of their interpretation of Digital's quarterly figures and stock buy-back plans, analysts agreed that staying power is the key.

Giga's Enderle said that Digital must log in several financially favourable quarters before he would assert that the company has turned itself around. "You can't simply make cuts" and then get excited when costs go down, Enderle said. "You need to have a series of quarters that are profitable and see revenue growth."

"At least at this point in time they're no longer a business out of control," Harry Fenik, vice-president at Zona research, said. "What happens now is going to be very interesting."

Digital's Palmer has also been pressed to comment on the company's apparently deteriorating relationship with Intel, which provides the chips around which many of Digital's machines are designed.

Asked whether Digital is considering using chips from Cyrix and Advanced Micro Devices instead, Palmer pointed out that Digital already has a product line based on AMD's K6 and did not downplay Intel's importance to Digital. "We continue to evaluate other suppliers . . . but the majority of our product line is based on Intel," Palmer said.

In spite of the legal fracas, Palmer did not anticipate that Intel would cut the throat of Digital's Intel-based systems by refusing to supply Digital with chips and related technology.

"We expect to retain a reasonable commercial relationship with Intel," Palmer said. "We remain convinced that we will be able to provide competitive systems to our customers based on the Intel architecture."

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