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Digital to Speed Plan to Cut Its Staff by 20,000 : Computers: The company says it will take a $1.2-billion charge against earnings to pay for that and plant closings.

July 15, 1994|From Times Staff and Wire Reports

BOSTON — Stung by continuing losses, Digital Equipment Corp. said Thursday that it is accelerating plans to eliminate 20,000 jobs and that it will take a $1.2-billion charge against earnings to pay for the staff cuts and extensive plant closings.

The moves represent a desperate effort by Chief Executive Robert B. Palmer to restore investor confidence in the company, which has been battered by $4 billion in losses over the past four years.

However, analysts said the moves do little to address the formidable technical and strategic challenges facing the nation's third-largest computer company.

"I don't think shareholders are satisfied with just cutting," said analyst David Wu of S.G. Warburg & Co. in New York. "They want to understand how Mr. Palmer is going to make this company grow again."

Digital's stock fell $1.25 to $20.125 on the New York Stock Exchange on Thursday.

Palmer also announced that he has changed Digital's management structure, which he described as mired in talks and memos, blurry lines of responsibility and slow decision making.

"The marketplace is too Darwinian to allow that amount of discussion," Palmer told reporters in a conference call. "We will be more agile and we will be more decisive."

Palmer said he has created nine business units, three of which will report directly to him.

"They've put in place an accounting mechanism to show who's really sinking and swimming," said Bill Bluestein, analyst with Forrester Research Inc. in Cambridge.

Palmer was hired in late 1992 to rescue Digital, the most successful designer of minicomputers, after it began to decline under co-founder Kenneth Olsen.

Palmer implemented a radical reorganization plan that included two rounds of staff cuts, but the company has had just one profitable quarter during his tenure.

The pressure on the company intensified in April, when Digital reported a $183-million loss for its fiscal third quarter, which ended in March. That figure was far more than investors had expected.

Some top executives were fired, and Palmer said then that the company's ideal size would be 65,000 employees. There were between 85,000 and 92,000 at the time, and Palmer said Digital would reduce its staffing over two years. On Thursday, however, he said the reductions would occur in one year.

In addition, he said, Digital will reduce its office and factory space by 10 million square feet to 22 million square feet--less than half what it had at its peak.

To pay for the changes, the company said, it will take a $1.2-billion charge against earnings for its fourth quarter, which ended July 2.


Palmer said the new measures will cut annual expenses by $1.8 billion and put Digital's operations in the black by the end of the calendar year.

Digital grew into a powerhouse on the strength of its minicomputers and other large computer systems. But the company failed to appreciate the significance of personal computers, which are now used for many of the functions once performed by Digital systems. The company was also late in developing its own version of an advanced computer design known as RISC.

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