Digital Equipment Corp., making good on its promise to restructure operations dramatically, said Thursday that it will take a $1.2 billion charge in its fiscal fourth quarter and cut 20,000 jobs within 12 months.
The sweeping restructuring, which includes shedding operations and reorganizing divisions and executive jobs, is designed to transform the loss-plagued computer-maker into a smaller yet profitable company focused on fewer markets.
Analysts said this could be the last of the major restructurings for the nation’s third-largest computer company.
“It’s a forceful enough action to help (Digital) turn the corner,” said Martin Ressinger, an analyst with Duff & Phelps.
The yearlong plan also is likely to give Digital’s chief executive, Robert Palmer, a new lease on life, albeit with his back against the wall, the analyst said. It “gives him until fiscal 1995 to prove he can” turn the firm around.
Palmer told reporters Thursday that “there is no magic silver bullet” in the new plan, adding that it will, however, stop the hemorrhaging at Digital.
Not everyone believed him. On Wall Street, Digital shares fell $1.25, to $20.12, on volume of 2.37 million shares, more than double its three-month average daily volume of 971,700 shares.
A “smaller, meaner Digital has a good shot at getting back in the black by December,” but for now the jury is out on whether it can actually do it, said David Wu, an analyst with S.G. Warburg & Co.
With the exception of the 1993 fourth fiscal quarter, Digital hasn’t turned a profit under Palmer’s leadership and had been loss-ridden for almost two years before. It peaked in 1988, earning $1.3 billion, or $9.90 a share, on revenue of $11.5 billion.
Digital announced that about 60 percent of the quarter’s charge will go to prune jobs, with the rest going toward closing plants and divisions.
The job cuts, announced to employees in an internal memo earlier, were accelerated to 12 months from 24 months. When completed, Digital’s work force will total about 65,000. The cuts, coming on the back of almost 31,000 jobs cut since Palmer took the reins in October 1992, don’t include people Digital will lose through asset sales, the executive said.
Digital has about 83,000 employees, including temporary staff, down from 92,000 at the end of the fiscal third quarter.
In addition, Digital said it would reduce office and manufacturing space worldwide by about 10 million square feet, to 22 million square feet, within 24 months.
The restructuring will result in savings of about $1.8 billion a year, the company said.
Coupled with other restructuring actions taken the last 20 months, the company said it has eliminated about $3 billion in annual expenses.
The reorganization will be funded internally, Digital said.
Meanwhile, Standard & Poor’s and Moody’s Investors Service lowered their ratings on Digital’s debt. S&P said the downgrade reflected “heightened business risk, uncertainty about DEC’s ability to restore profitability over the next 6 to 12 months despite the announced restructuring and the $1 billion cash cost associated with those charges.”
Although Digital provided no details on plans to sell assets, it said last week that it was negotiating with Quantum Corp. for the sale of part of its disk-drive business. It also is reportedly in talks to sell its consulting arm to Computer Sciences Corp.
