Palmer stands firm at signs of recovery

Hardware Digital revival looks feasible in wake of Intel settlement.

Digital Equipment CEO Robert Palmer crossed his shareholders againt. last week when he opposed their latest suggestions.

At the annual shareholders' meeting, where Palmer had outlined his latest turnaround strategy, the attendees had called for board directors to be elected every year rather than every three years. They also wanted to scrap a shareholder rights plan or poison pill scheme, adopted in 1989, to make the Digital takeover less attractive.

The votes are advisory only, so Palmer is likely to ignore them.

But shareholders showed some confidence in Palmer - who has been besieged by criticism and calls for his resignation - by voting against a proposal that he should give up either his president's or chairman's post. Palmer replied that it was common in the IT industry for one figure to be president, chairman and CEO of the same company.

Palmer claimed that Digital was back on track after at least five years of restructuring and financial hiccups. The cornerstones of his strategy for growth, he told the meeting, are a single worldwide sales and marketing organisation which he started to build earlier this year, a single products division which sells the whole Digital range to avoid internal competition, and the settlement of the lawsuit with Intel over Alpha chip technology which was announced last month.

He insisted that Digital was on target to raise its net margins to seven per cent by the end of next year, adding that the Intel deal was a factor in the move. Analysts estimate that without the Intel settlement, Digital would only have scraped five per cent in 1999. Net margins have risen from one per cent last year to three per cent.

Analysts' estimates of four to five per cent revenue growth for this fiscal year were reasonable, he said. Revenue was $13 billion last year.

'I am confident that this is the year Digital will begin to grow again,' claimed Palmer. He said internet-based systems can be marketed and sold more aggressively by a single global organisation and it would build on Digital's traditional strengths in high-performance computing and networking.

But he believed services will be the primary driver of the company's growth in 1998. 'Today, customers spend 47 per cent of their IT budgets on services and industry projections indicate that spending will be closer to 60 per cent by the year 2000,' he said.