Conference 7.286::digital

    Note, the very bottom line:
    
    	TOTAL EMPLOYEE POPULATION	119,500
    
    Despite the downsizing, why are we still at this level??
    
    Isn't that an increase over Q1?

If there's a loss, why is there still income tax expense?

    I can't understand why, after all the cost cutting and reduction in the
    Sales Force, the cost of selling rose approx. $255,000,000 over last
    year!
    
    Am I out of touch?  This in and of itself seems to be crazy.
    What gives?
    
    
    Marv
    
    P.S. Also note that non-U.S. revenue continues to go up.  Now at 65%.
         
    

    This quarter alone. Revenues UP 4%.
    
    Net loss                                          138,327,000
    
    Selling general and admin.       UP               109,526,000
    (what is included in this 
     catagory?)
    
    
    Where is all the cost cutting?
    
    We are selling more products and more services and losing more money.
    Blame it on the economy, blame it on the industry, blame it on the
    competition and the Japaneese.
    This, in my feeble brain, is POOR business management. PERIOD!!!!
    
    I was also shocked at the total employee count. How much did we spend
    laying off all those employees and the headcount remains 120,000?
    
    FLAME OFF: I'm tired of the B.S.
    
         Reis

Because in some taxing jurisdictions, we are making a profit, while in others,
we are not.

The P&L and balance sheet are Consolidated and show Digital's Worldwide Net.

- Andy -

Selling G&A I thought includes discounts. Jack Smith's statement said that we
had to "lower" prices to sell the same volume of goods.

- Andy -

    values that I look at for trends are:
    
                   End of June 1991           End of December 1991
                   ----------------           --------------------
    
    headcount          121,000                       119,500
    inventory          $1.595B                       $1.793B
    a.r. days sales    76 days                       87 days
    non-us revenue      60%                            65%
    
    Mark
    

    
    
       It's hard to understand, with all the job cuts, how this could
    happen. Then you stop, look around at who has been "axed", and it
    becomes pretty clear. This is a very top heavy company, and the cuts
    have not hit the high paid people who have been doing nothing for the
    last 5 years, living off of the success they had in the 70s.
    
       With all the people (worker bees) being laid off, who are all the
    managers managing? 
    
    
                                              

    Don't know if Kienzle and Philips are included in the headcounts. If
    they are, they'd add a few thousand.
    

    Also don't be deceived by the increase in revenues. Some of that has to
    have come from the Kienzle and Philips operations.
    
    Does anybody know if non consolidated financial reports are published
    anywhere (in the 10K for instance?). With the aquisitions looking at
    any trends (revenue, employment, costs etc) is absolutely meaningless.
    
    Dave

Subject: Digital Equipment reports net loss for quarter
Date: 16 Jan 92 16:38:31 GMT
	
     MAYNARD, Mass. (UPI) -- Digital Equipment Corp., a supplier of
computer systems and services, Thursday reported a net loss of $138.3
million for the second quarter ended Dec. 28, compared with net income
of $111.1 million in the year-ago period.
	
     For the quarter, Digital's sales were up 4 percent to $3.47 billion
from $3.35 billion in the 1990 quarter.
	
     Digital's sales and earnings figures for the quarter included two
months of operating results from the Information Systems Division of
Philips Electronics, acquired Oct. 28, and three-months results from
Digital Kienzle purchased January 1991.
	
     For the six months, the company reported a net loss of $109.7
million, compared to net income of $137.3 million in the year-ago
period. Sales for the period were $6.77 billion, up 5 percent from $6.44
billion for the comparable period in 1990.
	
     Digital President Kenneth Olsen attributed the loss to a competitive
business environment prompting customers to cut back on capital
expenditures.
	
     "We did not see any growth in product sales and we had to adjust
pricing," Olsen added.
	
     John Smith, senior vice president of operations at Digital, said, 
"Although we are disappointed by the results of this quarter, we remain
confident in our overall strategy and investments."
	
     "We are convinced that through our efforts to expand revenue and
contain costs we will weather the effects of this worldwide economic
downturn and return the company to improved levels of profitability,"
Smith said.

    An interesting figure to see would be the the average employee salary,
    that it the total expenditure on pay divided by the number of employees
    before and after the layoffs, er sorry, rightsizing.

    If the company is top heavy this figure should have risen.

    Jamie.

some further info on headcounts:
    
EMPLOYEE STATISTICS        U.S.     EUROPE      GIA      TOTAL
                           ----     ------      ---      -----
   Q4/FY90                71,382    34,066    18,552    124,000
   Q1/FY91                71,340    33,824    18,370    123,534
   Q2/FY91                69,015    33,451    18,606    121,072	(02jan91 data)
   Q3/FY91                67,569    32,861    18,611    119,041
   Q4/FY91                65,727    32,644    18,799    117,170	(30may91 data)
   Q1/FY92                63,655    32,277    17,313    113,245	(04oct91 data)
   Q2/FY92                62,540    31,955*   17,215*   111,710	(05nov91 data)

         *The above does not include the European and GIA acquisitions
           of Kienzle and Philips.


    /dlw

    Some more telling numbers:

    				Change from Q2FY91 to Q2FY92

    Product sales	       		-2.5%
    Services and other revenues         +13.0%
    Total operating revenues		+3.8%
    Cost of product sales		+18.2%
    Service expenses			+14.1%
    Total cost of sales			+16.3%
    Research and engineering		+4.0%
    Selling G & A			+10.3%

    The growth in service expenses closely tracks the growth in service
    revenues, so they are pulling their weight.

    Research and engineering is certainly under tight rein, tracking very
    closely the total revenue growth.

    But look at the growth in cost of product sales!  That maps onto the
    growth in inventories and days sales outstanding as mentioned in
    previous notes.  Somebody went and built a whole bunch of products and
    didn't sell them yet.  Now, this can't be the 6000/600s and other
    products announced in October, since the reason given for lack of
    revenue there is that they were in short supply.  So what's the story? 
    What products are the warehouses bulging with?

    		David

The total headcount includes our acquisitions of Kienzle and Phillips.  
As does the revenue number. Phillips does about $1B anually. So, two months
is roughly $166M. Without our acquisitions, we would have probably shrunk like
IBM is expected to do this year.

Can you say depression?  Sure...I knew you could.

    
    No, but is indicative of a problem. Our overall inventories seem to
    have taken a juxtaposition that, as a company, we feared a few years
    ago. We used to have a large portion of our inventory in raw material
    with a smaller portion in finished goods. Instead of "inventory to the
    left" (IE back to the supplier) we've moved "inventory to the right"
    or into the warehouse as finished goods. There may be a couple of
    reasons for this. Quick turnaround for our customers will, in some
    cases, demand that we maintain shelf inventory. That's ok if we're
    doing a good job of forecasting and turning that inventory. The last
    time I saw turns statistics they were better than they used to be but
    they simply weren't class A. The other issue is around how much of
    our inventory is in procured options and systems and how do we classify
    that. A disk drive that's a finished good to Seagate may or may not be
    raw material to us. 
    
    	No matter what I'm concerned that we have nearly $1B in finished
    goods inventory. 

    Boston Globe     Friday January 17th 


     Digital Equipment Corp. announced its frist-ever operating 
  loss, raising the likelihood of more layoffs and increased plant
  closings. 
     In its second fiscal quarter, the state's second largest
  emlployer reported a loss of just over $138 million, roughly
  twice as much as most analysts expected
     "The business stunk," said David Wu, analyst at S.G Warburg
  and Co. Inc. "And the next quarter may not be any better."
      Apparently agreeing that Digital's furture prospects- at
  least in the short term-look bleak, Wall Street punished the
  stock. In New York Stock Exchange trading Digital closed at 
  $54.75, down $4.24.
                                      
      Briefing reporters company officals openly expressed dis-
  appointment and declined to predict the time table for a turn 
  around. "In the short term, in our view, there is no reason for
  optimism," conceded John F. Smith, senior vice president, who
  repeatedly vowed to "turn up the heat" on cost-cutting efforts.
 
     In the quarter ending in December,Digital reported a loss of
 $138.2 million on sales of $3.47 billion. During the same quarter 
 last year,the company posted slightly lower sales of 3.35 billion
 but a profit of $111.1 million, or 92 cents a share. For the six-
 months prior to December Digital reported a loss of 109.7 million,
 or 88 cents a share, on a revenue of 6.7 billion. That compared
 with a profit of 137.3 million or $1.12 a share on sales of 6.4 
 billion, during the same period a year ago
     The Maynard based company attributed the slight increase in
sales to its service segment, wich grew 13 percent. Services include
designing and maintaining computers and computer networks. By contrast,
product sales declined 3 percent. Discounting two foreign acquistions,
in fact product sales were down 8 percent, according to John Adams, 
Harkness & Hill. "sales were plunk" he said.
     Last year, Digital said it would trim its 119,500-member work
force by about 10,000. But analysts say that number could now double.  
"The only question is how generous they'll be in their packages to
employess," said John Logan, vice president Aberdeen Group Inc.,
a market research firm. "They have poorly managed the transiton to a
new gereration of products. It could not have benn handled more amat-
eurishly".
    Most Analysts agree that Digital's unpecedented loss resulted from   
a combination of problems. Some, like the recession were beyond the 
company's control. But Digital made a mistake, analysts said, in
announcing its new souped up VAX mainframe coumputers in October but
offering them only on a limited basis. "They were in short supply,"
admitted Mark Steinkrauss, director of investment relations. Digital
also cut prices aggressively, apparently to make room for the new 
models.
    But optimism is warranted in the long-term analysts said. Digital
is stil financially sturdy wit 1.7 billion in cash and virtually no long
-term debt. As the new VAX models become available, "I think we will see
a turn around in demand," predicted Mark Schulman vice president of UBS
securities.

    Digital is also working on a new generation of mainframes code-named
"Alpha," that should be available sometime next year.
    Thought clearly not the company's salvation its recently stepped-up 
efforts to sell personal computers by mail is also taken as a good sign.
"Digital is paying attention," said Paul Callahan, senior analyst at
Forrester Research Inc. "It's the companies that don't responde that
end up disapperaing."


    

Subject: IBM reports fourth-quarter loss; plans layoffs during the year
Date: 17 Jan 92 13:45:43 GMT

	NEW YORK (UPI) -- Calling 1991 a "disappointing year" International
Business Machines Corp., the world's largest computer company, Friday
reported a fourth-quarter net loss after a charge and said it plans to
continue cutting its payroll this year.

	The computer giant reported an after-tax net loss of $1.38 billion
during the fourth quarter, which included charges of $3.4 billion for
restructuring and related actions. In the fourth quarter of 1990, IBM's
net income was $2.5 billion, or $4.30 a share.

	Restructuring charges against fourth-quarter earnings amounted to
about $4.68 a share, the company said.

	Revenues for the giant computer company fell 4.2 percent to $22.1
billion during the final quarter, from $23.1 billion during the same
period in 1990.

	For the year, IBM reported a net loss of $2.8 billion, which was
after a charge of about $2.3 billion, or $3.06 a share, for SFAS 106, or
employer's accounting for post-retirement benefits othan than pensions.

	In 1990, IBM had a profit of $6 billion, or $10.51 a share.

	Revenues for the year fell to $64.8 billion, from 69 billion in 1990.

	IBM Chairman John F. Akers said, "1991 was a disappointing year. We
were adversely affected by protracted worldwide economic weakness,
competitive pressures, and transitions within our product lines."

	Akers said, "IBM took aggressive actions in 1991 to make IBM more
competitive and efficient. We exceeded our worldwide work force
reduction goals for 1991, and reduced our work force by about 29,000
IBMers. We will continue to reduce our work force in 1992.

	"We continued to strengthen our product line and broadened our
business alliances. Our services business grew by 35 percent, faster
than the industry. That portion of our revenue that is less subject to
year-to-year fluctuations -- services, software, rentals and financing --
is 43 percent of our 1991 revenue,"

	Akers added, "finally, at the end of 1991, we announced
comprehensive management system changes that will transform IBM's units
into increasingly independent and accountable businesses and companies.
We are moving into 1992 a tougher, smarter and more competitive
business.

	"Assuming some improvement in the current difficult and uncertain
economic environment, we expect to increase revenue and improve cash
flow and returns as the year goes on," he said.

Gee.  Sounds like the auto industry 10-15 years ago...

    re: 20
    
    I have made that comparison for a couple of years now. I'm no
    soothsayer but I saw this coming as far back as the mid 80's.
    
    Jim C.
    

    Well the management problems with both industries ARE very similiar.
    
    Eric

    well get ready... i can hear them cranking up the old downsizing
    machine.... it apparently is going to be needing approx. 40-45,000
    employees to satiate it and relatively soon so i've heard. this is all
    getting very tiresome.. time to start beating the bushes i guess ( no
    pun intended) :0)
    

    The average salary in this case is really meaningless. What you need is
    the median salary. This is the point where 1/2 of the employees are
    above and 1/2 below. This is more a measue of things. 
    
    If you're into SPECmarks, it's basically the same thing. The SPEC
    benchmark consists of 10 tests. If someone designs a machine which will
    make one test superior and the rest average, the whole average moves up. 

    Extracted from  .18

    >                  But Digital made a mistake, analysts said, in
    >   announcing its new souped up VAX mainframe coumputers in October but
    >   offering them only on a limited basis. "They were in short supply,"
    >   admitted Mark Steinkrauss, director of investment relations. Digital
    
    <FLAME ON>
    
    Will someone please put an end to this gross misrepresentation which
    started with Mark Steinkrauss' memo preparing Wall Street for the Q2
    results?
    
    THE NEW PRODUCTS WERE AND ARE NOT IN SHORT SUPPLY AS FAR AS
    MANUFACTURING WERE/ARE CONCERNED.
    
    A lot of people put a lot of effort in pulling those products forward
    to meet a Q2 ship date versus the original Q3 dates.  And the reward
    they get?  To be "blamed" from the company's poor results - as I
    remember the memo it went something like "due to the normal
    manufacturing ramp these products have not been available".
    
    WELL COME HERE AND SEE THE MATERIAL WE HAVE PILED UP IN STOCK WHICH WE
    PREPARED FOR THE EXPECTED DEMAND FOR THESE PRODUCTS WHICH NEVER
    HAPPENED.
    
    <FLAME OFF>
    
    Does anyone have Jesse Lipcon's memo from before Christmas which
    repudiated this message in very strong terms?  It's an example to all
    of good management defending their employees.
    
    
    Mike
     

	If cost of sales is rising unduly, I can't see any obvious
	reason. Mind you, Sales has been reorganised so many times
	lately it could just be that they are always suffering from
	confusion. If they get time to settle down to a steady pattern
	of selling, it's just possible results will improve.

	As to inventory, I have in mind a particular category of product
	which is "sitting on the shelves". Namely, software products
	including the CASE tools which come under COHESION. Now I know
	perfectly well that the cost of manufacture of software products
	is negligible - it's all in development and selling. But we are
	not selling nearly as many licences in view of the great costs
	we have incurred in developing a host of software products. In
	my opinion, this is because of the deskilling of the field, and
	the fact that we have reduced the number of technical specialists
	in the field while adding large numbers of fairly complex new
	products.

	My 2�.

	/Tom

    Regarding this increasing cost of sales issue. I read somewhere (maybe
    in this notes string) a possible explanation for increased cost of
    sales. The explanation goes as follows:
    
    Revenue is actually LIST PRICE of a product
    Cost of sales includes any discounts/allowances that the salesforce has
    to give a customer to make the sale.
    
    Thus the vastly increased cost of sales could be due to the fact that a
    lot of discounting is taking place due to the depressed market.
    
    So could somebody tell us for sure where discounts/allowances appear
    on the income statement. Do they reduce revenue or increase cost
    of sales?
    
    Dave
    
    PS Re .-2 Glad to see that Mark Steinkrauss is doing as good a job
       as DEC's Investor Relations interface as he did as is doing as
       chairman of the DCU board of directors. 

Re .25:

>    Does anyone have Jesse Lipcon's memo from before Christmas which
>    repudiated this message in very strong terms?  ...

Yep.

It's all the more interesting now that Lipcon's a VP.


Re .26:

When I heard the penetration rate for one of the most basic CASE packages last
week, I was scandalized.  Then again, maybe the installed base isn't developing
software on VAX/VMS anymore.
				/AHM

    Revenue is the actual cash realized by selling net of anything �else.
    From an accountant's �point of view "list price" is meaningless.

    "Cost of sales" is every cost that can be allocated to the manufacture
    of that unit: the cost of the raw materials, the cost of the labor that
    goes into adding value, etc.  Cost of sales is really an artifact � the
    manufacturing processes.  An more accuraate term used in some texts is
    "cost  of goods sold".�

    "Selling, general, and administrative" expenses �cover the expenses
    associated with selling.�

    What is the distinction between "every cost that can be allocated to
    the manufacture of that unit" and "the expenses associated with
    selling".  In other words, where is the line drawn between
    manufacturing and selling?  Is it the point at which a product becomes
    "finished goods"?
        John Sauter

    RE: .30 "... the point at which a product becomes "finished goods" ..."
    
    Generally, yes.  (I say 'generally' because someone is bound to know of
    exceptions.)
    
    Costs (labor, parts, materials, waste, etc.) are accumulated at each
    inventory stage: raw materials, work-in-process, and finished goods. 
    All product is transferred (on the General Ledger) into the Finished
    Goods Inventory account before being sold.  As a result, the Cost of
    Goods Sold and the Finished Goods cost will be identical for the same
    item (i.e., one was sold and one wasn't) as long as they were
    transferred on the General Ledger at about the same time.
    
    Steve

    re -.1
    
    Not quite.  Using your example, you can add up all the costs of
    manufacturing a product and moving it into the "finished goods"
    category.  Call these accumulated costs "manufacturing costs".
    If then, the product is sold, it costs something to sell it ie.
    "cost of sales".  In this case, then, the "cost of goods sold" 
    = "manufacturing costs" + "cost of sales".  
    
    If, however, the product stays in finished goods inventory, it 
    accumulates "inventory costs", hence at some time in inventory its 
    cost is "manufacturing costs"+ "inventory costs".
    
     David

    .31 is correct.
    .32 is incorrect.

    Cost of goods sold (equivalent to cost of product sales) is the
    accumulated costs of manufacturing an item. Once the item is in a box
    in a warehouse, the costs, if any, associated with the item can only be
    "selling, general, and administrative".

    SEC/Shareholder accounting for manufactured goods is limited to the
    transformation of raw materials into finished goods.  Digital has no
    latitude to change the rules.

    Internally, we can play all the games we want allocating the cost of
    anything (manufacturing or selling) to a product on the shelf or to a
    black hole called overhead.

    There's no accounting line on the income statement (equivalent to the
    consolidated statement of operations) called "inventory costs", there's
    only a line on the balance sheet called "inventory".

    Holding an inventory of $1.5B means that we lose the opportunity to
    invest $1.5B at 4%, but an inventory is needed if you can't transform
    raw materials into finished goods fast enough, or transform finished
    goods into an receivable (ie sell it), or transform a receivable into
    revenue (ie collect payment).

    The most pessimistic scenario for inventory is "discarding costs". 
    That's the price you pay to have someone take it away.  When that
    number gets big, it merits a footnote in the income statement
    explaining that the inventory didn't "transition" into a receivable.

    It's PHILIPS.
    

re .33

>There's no accounting line on the income statement (equivalent to the
>consolidated statement of operations) called "inventory costs", there's
>only a line on the balance sheet called "inventory".

>Holding an inventory of $1.5B means that we lose the opportunity to
>invest $1.5B at 4%, but an inventory is needed if you can't transform
>raw materials into finished goods fast enough, or transform finished
>goods into an receivable (ie sell it), or transform a receivable into
>revenue (ie collect payment).

   There is a business (not accounting) concept called "carrying cost" which
   represents the costs that management considers are incurred by carrying
   inventory.  Typically that is in the 1.5 to 2.5 percent per month.  It is
   the result of a management decision that inclusion of such costs in the
   planning of inventory will lead to better decisions about investment.
   Besides the opportunity cost of not being able to invest the money tied
   up, there are costs due to maintaining warehouses and due to material
   "shrinkage", a polite term for theft and deterioration.

   Continuing Pat's example of $1.5B, if we keep it for a year at 2%
   carrying cost, we are spending (according to this concept) 24%*$1.5B =
   $360M to have the inventory.  That should make our management think a
   bit.

Dick