Judgement day as Palmer takes leave
Hardware Digital CEO's achievements put under the spotlight.
The completion of Compaq's acquisition of Digital two weeks ago marked the departure of its chief executive officer Bob Palmer after six years at the helm. Despite the generosity traditionally bestowed on CEOs who depart big companies with grace, the assessment of Palmer's achievements must, on balance, be a negative one.
Naturally, his supporters will say he radically restructured a manufacturer that was inefficient; that he took Digital back to its strengths in engineering, chip design and scientific markets; that he built up the services arm and that he signed partnerships wisely, culminating in the Compaq merger.
But these plus points are easily knocked down. Palmer did not restructure in one effective effort, but constantly and often inconsistently. His emphasis on the Alpha platform was misguided - Alpha was a miracle of engineering, but a disaster as a marketing and commercial strategy. The services strategy was in line with every dwindling hardware vendor in the business.
Meanwhile, the Compaq takeover can be interpreted as an admission of defeat by a once great company as a wily move that benefits shareholders and users alike.
Admittedly, Palmer came into a minefield when he joined. Digital had been built up to become the world's second largest computer maker by its founder Ken Olsen, a man of massive charisma and technological genius, but one who could not cope with changing market conditions, increased competition and recession. The man who dismissed the PC and Unix as being technically second best was not qualified to change the company to meet tougher conditions.
Yet many of the innovations for which Palmer is given credit were already put in place by Olsen. Alpha was well down the road in 1992, as was the move to services, and Olsen had even accepted the need to embrace PCs and Unix.
Olsen was undoubtedly reluctant to carry out the massive task of keeping Digital competitive at a time when players such as Sun and Compaq were emerging to challenge it and when all the old heavyweights were suffering - IBM making the greatest loss in US corporate history in one black quarter.
But IBM brought in an outsider with radical ideas, Lou Gerstner, to save the company from near disaster, while Digital chose a company veteran, who had more ruthlessness and modern concepts than Olsen, but fell short of the decisive approach needed.
The mid-90s saw Digital lurching from one reorganisation to another, its channel strategy in shreds, its focus zig-zagging between vertical markets, centres of excellence, hardware and services.
It also saw the brave but probably foolhardy attempt to establish Alpha as the world's standard processor from desktop to supercomputer, at a time when Intel was starting to gain the dominance of the PC world it now enjoys, and to start to edge into the server market.
Alpha, chip watchers agree, was probably the best engineered and highest performing mainstream processor to hit the market. It was also ahead of its time in terms of supporting 64-bit applications and other functionality that was not yet in demand from customers. It was expensive to produce and buy, as well as being a high risk for OEMs and manufacturing partners.
Digital appeared, to the outside world at least, unsure of whether to push Alpha as a processor for other companies to adopt, or as the basis of Digital's own range of products, also called Alpha. The millions spent on a branding campaign failed to clear up the confusion about who was supposed to buy Alpha.
Poor marketing and bad timing meant Digital failed to reap sufficient returns from the classy technology of Alpha to justify its place as the centrepiece of the company's comeback strategy. 'Alpha was fine for the market Digital always served best - the high performance scientific sector - it should have stuck to that because no other mainstream platform could address that need,' said an analyst at IDC.
What kept Alpha alive, after its manufacturing plant in Scotland was sold off, was Digital's close relationship with Microsoft. This has produced a niche for Alpha, as the basis of very high performance NT servers, which will stand Compaq in good stead. The alliance was largely to Palmer's credit.
Digital felt it had a historical stake in NT, which was designed by the same architect (Dave Cutler) as its own VMS operating system and shared many of its features. Industry gossip has always speculated that a reason for Microsoft's willingness to cosy up to Digital was to avoid possible patent litigation.
The Microsoft Alliance for Enterprise Computing gave Digital a volume source of software for Alpha and offered Microsoft an architecture for developing high-end implementations of NT.
But among such gains were setbacks. Palmer returned Digital to profit, but it took years to make it sustainable and was achieved largely through cost cutting rather than attracting extra business.
Wall Street compares Digital's stock value increase, from $37 to $57.75 between 1992 and this week, with a more impressive comeback from IBM, up from $39 to $119 since Gerstner took over.
Critics claim Palmer was effective - though too slow - in cutting his company's overheads, but failed to come up with a vision to take the leaner company forward. He seemed to jump on one bandwagon after another, often emulating smaller peer group companies such as services, NT and internet servers, but eventually came back to one aim - to sell more Alpha.
Digital displayed two critical failings that have characterised its history - poor marketing of good technology and weak understanding of changing customer needs. Olsen's dismissal of the growing demand for a cheap, personalised desktop machine was no more criminal than Palmer's insistence that companies would value Alpha's speed over Intel's applications base. Both attitudes displayed a technological snobbery ingrained in the Digital culture, but at odds with the world of commoditised computers and mass market Wintel.
The hope is that Compaq will bring that customer understanding and marketing clout to bear on Digital's technologies so that it can win the success it deserves. It is ironic that this may happen more readily following a takeover than under Digital's own undoubtedly committed and courageous, but ultimately unsuccessful, chief.