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Digital's `Trojan Horse' Or Just Another Also Ran?


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DIGITAL'S `TROJAN HORSE'--OR JUST ANOTHER ALSO-RAN?

In May 25, Digital Equipment Corp. plans to storm the personal-computer market with what it claims will be the fastest machine ever to run Microsoft Corp.'s popular Windows software. As of then, crows DEC Vice-President Enrico Pesatori, DEC will have "the hottest PC with the coolest operating system."

Or so it hopes. At the heart of the new PC is DEC's Alpha semiconductor technology, introduced last November as the long-awaited successor to the company's aging VAX minicomputer line. Despite spitfire speed, a lack mf software has hobbled Alpha sales. Analysts estimate that DEC has sold fewer than 4,000 Alpha machines. With VAX sales faltering, Wall Street now figures DEC will post a $200 million operating loss for fiscal 1993, ending June 26. Not as grim as its $636 million operating loss in 1992, but a frustrating start for Robert B. Palmer, who became DEC's Chief Executive just eight months ago.

In the long term, DEC needs Alpha to succeed, if it is to maintain its important role in the computer industry--and the new Alpha PC is key component of the strategy. Priced at just $5,000 to $7,000, the PC is supposed to keep VAX customers on board. And if it does well, it could win new customers by giving them a low-cost taste of Alpha's top-ranked performance. "Alpha PC has the potential to be Digital's Trojan horse," says International Data Corp. market researcher Chris Christiansen.

Still, DEC faces some withering competition. A flood of new PCs based on Intel Corp.'s powerful Pentium microprocessor is due out soon, although Intel is being hampered by shortages of the new chip (page 44 34 ). And companies such as IBM, Hewlett-Packard, and Sun Microsystems are doing well at Alpha's expense, says Morgan Stanley & Co. analyst Steven Milunovich.

SOFTWARE GAP. DEC faces plenty of other challenges, too. Although its own sales of Intel-based PCs will likely double in this fiscal year, to about $1 billion, it hasn't cracked the big computer retail chains that most PC makers favor. As a result, DEC remains effectively absent from the PC mainstream. "Alpha PC isn't going to be a mass-market item. A very small segment of the PC market is ready for a machine like that," warns William M. Bluestein, a market researcher at Forrester Research Inc.

Even big DEC customers seem less than enthusiastic. At Aetna Life & Casualty Co., for instance, Alpha hardware and Windows software "are two separate issues," says Lyle C. Anderson, chief technology officer. He reckons that he can run Microsoft's Windows NT operating system on more-familiar Intel-based PCs. At Rockwell International Corp., "we like what we see, but we've not acted," says James F. Sutter, vice-president for information systems. "We're guided by our own budgeting." And last year, HMO America Inc., a Chicago health maintenance organization, worried by a dearth of Alpha software, decided to keep buying VAXes.

DEC is making a big effort to remedy the situation. It's lending Alphas to customers and spending heavily to persuade software developers to target the machine. By June 30, it expects 2,600 programs for Alpha to be available. Still, Alpha has to make a big jump forward before it can pull DEC out of the slow lane.WAITING FOR

LIFT-OFF

Three years in the making, Alpha computers haven't gained enough momentum to

supplant sales of Digital Equipment's graying VAX minicomputers. Here's the

story so far:

OCTOBER, 1990 DEC promises speedy new computers to replace VAX

FEBRUARY, 1992 DEC introduces the Alpha chip, the high-speed advancement at the

heart of the new computer line

NOVEMBER, 1992 The first minicomputers and workstations using Alpha are

delivered to customers

MAY, 1993 With Alpha sales totaling a tepid 3,000 to 4,000 units, DEC unveils a

low-priced Alpha personal computer

DATA: COMPANY REPORTS, INTERNATIONAL DATA CORP.

Gary McWilliams in Boston


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