MAYNARD, Mass. -- Kenneth H. Olsen, the founder and president of Digital Equipment Corp. and a computer industry legend, said yesterday that he would retire, ending 35 years at the helm of the world's second-largest computer company.
Robert B. Palmer, Digital's vice president of manufacturing and logistics, will be named by the board of directors later this month to succeed Mr. Olsen.
Mr. Olsen, who is 66, co-founded Digital with $70,000 in borrowed money in 1957 and single-handedly built it into a $15 billion force in the computer marketplace. But in recent years he has been under increasing fire because of Digital's declining financial situation. Increasingly, Digital staff members and industry analysts have been calling for the enigmatic entrepreneur to step down.
Nonetheless, Mr. Olsen's announcement surprised Wall Street analysts and those who follow Digital, and it sparked speculation that the Digital board of directors forced the move.
Mr. Olsen had consistently dismissed talk of his retirement and was expected to stay at the helm until the company had effected some sort of financial turnaround. Despite his being under increasing pressure from the board to steer the foundering company back to profitability, however, Digital remains awash in red ink.
Next week the company is expected to announce a nearly $2 billion loss for its fiscal fourth quarter, which ended June 30. The loss includes a $200 million operating loss and up to $1.7 billion in restructuring and accounting charges. Massive layoffs of up to 15,000 employees are also expected in this fiscal year.
Digital has been in the throes of deepening financial woes for the past three years, culminating in what will be three consecutive losing quarters after never having had a single unprofitable quarter.
"I'm surprised at the timing," said Shao Wang, an analyst with Smith Barney. "I would have thought he'd stick it out through the transition to the new Alpha technology."
Alpha is the name of a new microprocessor developed by Digital, which will become a mainstay of a new generation of computers.
In a statement, Mr. Olsen said: "I've had a long and satisfying career at Digital, and it's time for the next generation of management to assume leadership. I'm making this announcement now to provide an orderly transition at the beginning of the company's 1992 fiscal year."
Digital said Mr. Olsen's resignation would take effect on Oct. 1. He is expected to remain a member of the board at least until his term expires in November 1993.
Neither Mr. Olsen nor Mr. Palmer were available to talk to reporters yesterday. But in interviews recently, Mr. Olsen gave no indication that he was ready to step down.
"I have no thoughts of leaving," he said in an interview late last month. "It's more exciting, more fun than ever. I laugh at all the other guys who won't leave. I'm sure I won't have that problem. But so did all those guys I laugh at."
Analysts were uniformly pleased with Mr. Palmer's appointment. "Palmer is a dynamo," Mr. Wang said. "He's got the right energy level, and right outlook for what it will take to turn Digital around. He's the best choice they could have made."
Mr. Palmer, 51, is an urbane Texan with a master's degree in physics and a penchant for expensive suits -- he is called "GQ Bob" within Digital -- who joined the company in 1985 after a long career in the semiconductor industry. He was one of the founders of the Mostek Corp. in 1980.
"Palmer is brilliant, one of the most balanced managers I've seen," a Digital finance manager said. "He's the Michael Jordan of management in Digital."
In an interview July 6, Mr. Palmer, when asked if he had any interest in taking over as president of Digital, replied: "At some point in time, Ken will retire and there will be a successor. That person will have enormous shoes to fill. Myself, I think it's years way. I'm not worrying about it."
Mr. Palmer also said he considered Digital, second in the industry only to International Business Machines Corp., to be poised for a turnaround. "We're a better company than this," he said.
Mr. Olsen and Harlan Anderson, a colleague at Lincoln Labs at the Massachusetts Institute of Technology, co-founded Digital in an old woolen mill here in Maynard, where Digital's headquarters remain.
In recent years, Mr. Olsen had consistently refused to name his successor, despite pressure from Wall Street, claiming it would be the "kiss of death" to that person. Throughout Digital's history, vice presidents who basked too long in the spotlight quickly fell into Mr. Olsen's disfavor and soon left the company.
Nearly a dozen Digital vice presidents have departed in the past six months alone, and many of those who left have said that Digital is in turmoil.
The company was late in embracing workstations and the industry's Unix operating system standard, for example. And lately it has suffered increasing declines in sales of its flagship VAX computer line. Customers have slowed their buying of VAX machines in anticipation of the company's Alpha-based computers, which are not due to start shipping until November.