Bright earnings propel Digital stock

January 15, 1993|By New York Times News Service

Stock of the Digital Equipment Corp. surged yesterday as Wall Street reacted to a better-than-expected earnings report.

Analysts had been expecting a loss in excess of $110 million for the company's second fiscal quarter, which ended Dec. 26. But the company said it had a loss of only $74 million, compared with a loss of $155 million in the corresponding quarter last year. Revenues surged 6 percent from a year earlier, to $3.7 billion.

The most recent loss was also much narrower than the $261 million loss reported for the first fiscal quarter.

Digital's stock jumped $7.325 a share, to $42.25, yesterday on the New York Stock Exchange.

"This company is making faster progress than I thought," said William J. Milton Jr., deputy manager of Brown Brothers Harriman & Co. "They are making solid progress toward profitability."

He noted that the dramatic improvement from the first to the second quarter came in a "tough quarter for large-system manufacturers, as you can see by looking at IBM."

Digital officials would not speculate on when the company might return to profitability, but analysts said that with its rapid progress, it may return to profitability as soon as the fourth fiscal quarter, which ends in June.

"Over the last few months, management has been very aggressive in reorganizing, reducing head count and focusing the business," said Richard Chu, an analyst with Cowen & Co. in Boston. "All of those things sound more credible, of course, when the numbers are better -- not worse -- than expected."

Still, analysts remained cautious about Digital for the long term, suggesting that the company will need not only to return to profitability but also to show it can sustain growth in a difficult market.

Digital's president, Robert B. Palmer, in a conference call with reporters, said he was not satisfied with any loss but said, "We are encouraged with our progress toward the transformation of Digital."

The chief financial officer, William M. Steul, attributed the improvements to controlling costs through increased restructuring and downsizing.

Digital reduced its work force in the quarter by 6,500 employees, more than the company had predicted, bringing the worldwide staff total down to 102,100. Mr. Palmer said the cuts would continue until the company reached 85,000 to 90,000 employees, which he said was what industry analysts believed to be the right size for Digital.

Mr. Steul also said that Digital reduced spending on research and development by $19 million, or 4 percent, in the quarter.

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