7,200 at Digital face new layoffs

Lawrence Edelman
The Boston Globe

June 15, 1991

With no upturn in its business in sight, computer giant Digital Equipment Corp. of Maynard said yesterday it will begin a new round of layoffs that could cut its work force by roughly 7,200, or 6 percent, in the next 12 months.

Digital, Massachusetts' second-largest employer, said the specific number and timing of layoffs had not been decided and would depend on whether sales rebound in the fiscal year that begins June 30. It could not say how many of its 29,000 Bay State employees may lose their jobs.

"There will be further work force reductions," said Dallas Kirk, Digital's director of public relations. If business conditions do not improve, the cuts "could be roughly the same size" as the 7,200 jobs Digital will have eliminated in the fiscal year that ends June 29, Kirk said.

The pending layoffs at Digital were disclosed a month after Prime Computer Inc., a Natick-based computer and software vendor, said it will dismiss at least 800 workers in 1991. Rumors are also swirling that Wang Laboratories Inc. of Lowell will soon dismiss thousands of employees. Frank Ryan, a Wang vice president, said layoffs were being studied, though a final decision had not been made.

Taken together, it is clear that the Massachusetts minicomputer industry is still being battered by recessions in the United States and other key computer markets, as well as a shift by customers to smaller computers. What's more, despite predictions of imminent economic recovery by economists, the state's big computer makers say they have seen no signs of improvement.

"We haven't seen any substantial indications of an economic upturn in the United States or Europe," said Mark Steinkrauss, Digital's director of investor relations.

For the first nine months of its fiscal year, Digital's profits fell 23 percent to $253.9 million on sales that rose just 4 percent to $9.97 billion.

Wall Street analysts said it was next to impossible for Digital's sales to increase quickly enough to stave off more pink slips. "There is no way around it," said Robert Herwick of Hambrecht & Quist Inc. in San Francisco. "Revenues won't pick up until fiscal 1993," added David Wu of S.G. Warburg in New York.

That's when Wu expects Digital to begin selling large numbers of a new computer line that combines its popular VAX software with hardware that it will eventually be 10 times faster than current VAX models. The new line, codenamed Alpha, is Digital's bid to halt the loss of sales to rivals that have exploited the low-cost and high speed of the Unix software system and a computer design known as reduced instruction-set computing, or RISC.

Digital has been cutting its payroll since October 1989, when it initiated voluntary severance programs accepted by about 5,550 employees. Last January it resorted to layoffs, the first in its 33-year history. Since then another 4,650 employees have left, Steinkrauss said.

Though Digital has eliminated about 10,200 jobs, total employment has only fallen by 9,000 because it continues to hire in selected areas. Steinkrauss said the worldwide work force -- excluding additions resulting from its acquisition of a German computer company -- will number about 116,800 by the end of this month, down from a peak of 125,800 in fiscal 1989.

The company is also slashing nonpayroll costs. It has restricted employee travel and consolidated plants and office space. Steinkrauss said Digital has moved out of 5 million square feet of space out of a total of 44.2 million square feet.

Analysts said Digital has been particularly hurt by disappointing sales of its biggest computers, the VAX 9000 mainframes. While they had estimated that the company would ship $1 billion to $1.5 billion of the machines in their first full year on the market, actual sales have come in under $500 million. That shortfall alone leaves Digital with about 5,000 more people than it can afford, analysts said.

Others product lines are struggling too, including the company's bread-and-butter VAX 6000 minicomputers. One bright spot: Its Unix-based engineering workstations are selling strongly. Unfortunately, these machines carry much thinner profit margins than Digital's bigger systems.

Analysts say Digital will likely take a big charge against its fiscal fourth-quarter earnings to cover the expense of additional layoffs. They don't know how big the charge will be, but they think it will be less than the $550 million Digital took in fiscal 1990.