and networking allowed several individuals to share the same information
and computing capabilities.
DEC immediately shipped every 8600 made. While sales at DEC climbed,
other manufacturers like IBM, Wang,
Data General, and Hewlett-Packard were
recording slumps. Over the next 18 months, DEC released ten additional
VAX system components, with each one able to communicate with its brothers
and sisters as soon as it was installed.
Again, the Personal Computer Problem
One problem still plagued DEC. It still didn’t have a competitive low-end
PC product. Based on its success with the VAX machines, DEC decided to
create its own low-end desktop model, called the VAXmate, that would incorporate
the best of DEC’s networking capabilities, including a connection to Ethernet.
But by the time VAXmate hit the market, most of the potential users had
already bought IBM PCs, and those that hadn’t were turned off by the $5000
price tag. Although many individuals at DEC understood the PC market,
they could never convince the company and Olsen what should be done. Many
ended up leaving after years of fighting the system.
Even with its ongoing problems in the low-end PC market, DEC was successful,
and in October 1986, Fortune magazine put Ken Olsen on the cover
and declared him to be "America’s Most Successful Entrepreneur."
Record profits were still being received, with no visible end in sight.
1987 proved to be the most successful year ever for DEC. In January 1988,
Apple negotiated an agreement with DEC to integrate its Macintoshes into
VAX networks. This was profitable to both companies – it gave Apple an
opening to corporate environments where it had previously been weak and,
by endorsing the Macintosh, it gave DEC the desktop machine that had eluded
it for so long.
Then in 1988, Sun Microsystems began
inundating the market with powerful workstations running AT&T
Bell Labs’ UNIX
operating system. These desktop systems were priced well below DEC’s minicomputers
and were able to give individual users a lot of computing power. Many
in the industry began to speculate that UNIX could become the industry
standard since it worked across different machines. And in June, IBM released
the Application System/400, a mid-range system that tied together two
key IBM minicomputers.
The Final Decade
In the latter part of 1988, DEC countered some of these moves by releasing
networking products that allowed VAX computers to connect and share files
with computers made by IBM. It also created an updated version of its
Ultrix operating system that was compatible with UNIX and complied with
all the major UNIX standards.
For the next few years, DEC maintained its position as one of the primary
manufacturers of computer equipment. But in the 1990s, things began to
go downhill again. A recession had hit the country and the computer industry
was shifting its emphasis to software and services. Sales were moving
from institutions to individuals and from proprietary mini and mainframe
computers to PCs, networks, and open systems. DEC was on the wrong side
of almost all of those trends and was simply not responding well to the
changes.
By 1992, it was clear that DEC was in trouble. The fiscal year ended
with DEC carrying a $2.8 billion debt following losses of $617 million
in 1991. The company’s operating expenses were eating up 44 percent of
its revenues and company management agreed that DEC had to downsize. But
Ken Olsen could not bring himself to let thousands of workers go and,
eventually, the board of directors asked Olsen to step down. After 35
years, the man who had forever epitomized the heart and soul of DEC was
gone. But he had lasted far longer than most of the entrepreneurs in the
computer industry and had carried his company through many highs and lows.
After Olsen’s departure, the new management under CEO
Robert Palmer began cutting expenses. Factories were shut down and
over 30,000 workers were let go. By mid-1993 the downward spiral was slowed
and, although the company was still in the red, it appeared to be recovering.
Internally the reorganization brought confusion, and even though DEC brought
in new managers who knew the high-volume, low-margin market, they were
simply unable to shift to high commodity products quickly enough. On April
15, 1994, the company and the world were stunned to learn that DEC had
recorded a $183 million dollar third-quarter loss. At DEC, the day became
known as Black Friday.
The job of turning the company around was given to Enrico
Pesatori, a DEC vice-president who had come from Zenith
Data Systems in February 1993. Starting in July of 1994, Pesatori
put the company on a new path that included shifting sales from DEC’s
sales force to hundreds of resellers, scrapping the confusing and time-consuming
matrix management, dropping unprofitable ventures, and reorganizing the
company into a series of product-oriented mini-DECs, each responsible
for its own success. Additional jobs were cut, and the company that once
employed 126,000 soon consisted of about 63,000, a third of whom were
in Europe.
The company refocused on its strengths, primarily networking and video
servers, and moved into the high-volume, low-margin commercial markets
that were necessary to ensure continued revenues. In 1994 DEC came out
with a line of desktop computers called the Celebris, and in 1995 introduced
its new ultra small laptop product called the HiNote. This time, the company
had management in place that understood how to sell to this market, and
in May 1995, DEC posted its first back-to-back profitable quarters in
four years.
In addition, DEC has produced its own super-fast microprocessor called
the Alpha. DEC is using the Intel chip in PCs and large servers being
built for the commercial market, while using its much faster Alpha chip
in DEC products for its existent customers. DEC has also struck a deal
with Microsoft’s Windows NT group to use the Alpha chip in its operating
system for network servers. DEC’s video server computers are also being
used by cable companies
to insert local advertising digitally onto their networks. This switch
to digital ads is expected to open an extremely lucrative market for specialized
servers. In 1996, DEC announced it would discontinue marketing residential
PCs and concentrate on the business PC market.
Digital Equipment Corporation is one of the few original manufacturers
to have survived the early years in the computer industry. The company
has suffered the ups and downs that have plagued this high-growth industry
to become one of the most recognizable names in computer manufacturing.
In 1998, Digital Equipment announced that it was being sold to the Compaq
Computer Corporation for $9.6 billion, thus ending its long, strange
economic journey of ebbs, flows and surges.
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