Conference 7.286::digital

    OK, I'll stick my neck out on this one.
    
    Some of that employee population used to make disk drives for us. We
    don't pay them anymore so they are gone from the headcount, but we
    still need disk drives. Thus the "cost of sales" is still there even
    without the headcount (did the disk storage business contribute to
    corporate profit? does Quantum generate profit from "our" drive
    business?)
    
    r
    

>> does Quantum generate profit from "our" drive
>>    business?)
>>    
>>    r
I know! I know!

The answer is, very little. They also went out of the drive business and 
are buying disks from a Japanese company. A majority of our disks now
come from Seagate.

Digital only made money on disks when we produced, high margin, proprietary
bus, drives. And we did that for too long. Beyond the point when customers
would live with it. 

In reality, we made more money, from the lease of the floor space in CXO to 
QUANTUM, than we made making SCSI disks.

John I

    
    Cost of sales includes the material cost to build hardware, such as
    disk drives, memory, etc.  The decreasing margins in the computer
    business means that we pay relatively more for components for 
    each given unit of revenue.  The same is probably true for services;
    more competition means less margin between the cost of the employee
    (cost of goods sold?) and the netted revenue.
    
    For example; for every $100k of computer goods sold today we may
    pay $70K for the component parts (lower margin).  In 1988 we might 
    have only paid $40k in materials for the same $100K of product 
    revenue (these numbers are pure guesses).
    
    The SG&A numbers are a surprise though.  
    
    ...Ken

    ten years ago, I'm sure the proportion of PC's to the total hardware
    mix was much smaller than in recent years.  This product shift would
    increase costs relative to revenues.
    
    Second, take any employee figures with a grain of salt.  The systems
    used to report headcount don't always include all temp workers and
    contract workers.  When I joined in '88 I don't recall that many
    contract workers being around; only 'pure Deccies'.  
    
    D

    THE REASON FOR THE HIGH COST OF SALES, COMPARED TO OUR
    COMPETITION FOR BOTH HARDWARE PRODUCT AND SERVICES, IS THAT FOR EVERY
    DOLLAR OF REVENUE SOLD, THREE TO FIVE INDIVIDUALS WITHIN DIGITAL RECEIVE T
    SALES CREDIT.
    
    DIGITAL WILL PAY OUT INCENTIVE COMPENSATION TO ALL FIVE INDIVIDUALS.

	And you meant to shout this?

							mike

re: .5

Sorry, it doesn't work that way.  I suggest that you read .3
again. 

An equipment sale gets counted in revenue *once*, in cost of
sales *once*.

It may be counted toward sales quotas and commissions more than 
once, but those payouts (sna salaries, etc.) are counted under
SG&A. 

	re: .5

	Add to the higher cost of materials and people the pressures 
	from the "purchaser".  You can only charge what the market is 
	willing to pay.  That puts a squeeze on GM%, or makes COGS a 
	higher % of NOR.

    In .0 I asked two questions. The first one (increase of cost of sales)
    was just to get information.
    
    The second (Downsizing vs SG&A increase) probably contains a true issue.
    It seems that the people downsizing has no effect on the SG&A reduction
    (especially in the last FY).
    
    I still have the same trouble : -7000, what for ?
    
    Thierry
    
    P.S.:
    All numbers announced to explain that all is going well and FY97 will
    be better, thus we have to be confident are short term numbers (Cash,
    revenues comparison with FY -1 ...). In french we say "Demain, on rase
    gratis" (Tommorow, we shave for free - Barber shop ad). I understand
    short term interest is the more important for shareholders than the 
    Digital life cycle.
    
    So, what leads to the strategy ?

RE:                      <<< Note 4783.4 by TROOA::BROOKS >>>

>>    contract workers.  When I joined in '88 I don't recall that many
>>    contract workers being around; only 'pure Deccies'.  
    
    I've been working on a contract basis for DEC (and now Digital) for a
    total of more than 7� years since February 1986, and there are fewer of
    us around now, not more. Note that I'm talking about Europe here, not
    the US.
    
    Cheers, Laurie.

    In the U.S. there is a perception that many TFSO'd Deccies have been
    miraculously resurrected as contract personnel or employees of
    third-party firms contracted to do their former jobs.
    
    Since these people are no longer in the official headcount, this is one
    excellent way to trim the employee population while growing SG&A
    expenditures.
    
    \dave

    
    There are over 100 contract employees in OpenVMS.
    
    

    I believed that the growth in Sales expense was for a large part
    explained by the investments in and compensation of channels?
    
    Al
    

One factor that drives up sales costs is competition. The more competitive the
market, the more you need to do to convince customers that yours is better than
the other guys. More dog&pony shows, more literature, more
testimonials/references, more up front service/pre-sales consulting, longer
sales cycle, etc.

I believe that one reason there are so many contractors at Digital today is
because in many cases, the strategy was to outsource the work and keep managers
to manage it. The people layed off were, in many cases, the people who did - and
knew how to do - the work.  Since the strategy was to outsource, we were the
logical ones to outsource too -- since we already knew the job, the processes,
etc.