One Step Forward, Two Steps Back

BOSTON: One day after Digital Equipment's No. 2 executive stepped down citing poor results, the computer company announced it would cut 7,000 of its 60,900 jobs as part of a $475 million restructuring. Digital, which made its mark in the minicomputer market, is struggling as it tries to readjust to the PC and high-powered work station market. The company underwent an extensive restructuring in 1994. In the first quarter of this year, beset by bloated inventories, depressed sales and price cuts, Digital's PC division saw revenues fall by 10 percent. The events of the last two days raise concerns about Digital's financial performance in the most recent quarter that ended last week. Analysts had been expecting Digital to post a profit of about $1.06 per share for the second quarter, but that number is now expected to be below 80 cents, before applying the $475 million restructuring charge. TIME's Philip Elmer-DeWitt reports that Digital's woes do not signify a trend in the industry. "Digital's unhealthiness predates any short-term weaknesses in the PC business," Elmer-DeWitt reports. "The rise of smaller, more powerful microcomputers has reduced the demand for minicomputers. Digital has had to reinvent itself to move toward the PC and Internet business." Elmer-DeWitt says Digital has already made some inroads into the Internet business with its new search engine: "Alta Vista is the premier search engine on the Internet," Elmer-DeWitt says. "If Digital continues to position itself well in the Internet and high-powered work station market, it can survive." -->