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Volume 2, Number 11 November
1983
Ken
Tells Shareholders About Short-Term Problems And Long-Term
Strengths
VT200s
-- Winning In The Video Game
Ed
Kramer Given Responsibility For Pc Marketing And Sales
Corporate Marketing
Planning And Finance
Kevin
Sullivan Assumes New Position
Employee
Sales Referral Program Being Developed
Speaking to a standing-room-only audience
of shareholders at Digital's annual meeting, Ken Olsen,
president, explained the company's lower-than- expected first
quarter results and emphasized the company's long-term
strengths in products and people,,
As is usual, the formal part of the
meeting took only a few minutes. It was followed by Ken's
presentation and then questions from the audience. The meeting
provided a supportive forum for Ken to talk about Digital's
position. The questions were varied in nature, and Ken
conveyed his confidence in Digital's long-term success and its
ability to overcome current problems.
"Our personal computers have been
received well, and we shipped 19,000 of them last quarter.
However, this number was well below what we had planned. Also,
a few of our newest and highest technology products had some
unusual start up problems, and this delayed shipments of our
largest systems," said Ken.
"We're In the business of making change,"
he noted. "We have dramatic changes every year with our
products. The products we made a few years ago now look used,
antique and strange. The products we'll have a few years from
now will make the ones we're so proud of today look strange
and antique.
"We sell products which become less and
less expensive and we sell larger and larger numbers of them.
This means continuous change in our organization and
continuous change in our administrative procedures. This last
quarter we simply changed too many things at one time." As it
turned out, administrative difficulties masked and compounded
other problems.
He added that despite this situation, the
order rate is going up, and the backlog is increasing. "Our
office sales, in particular, have done very well this last
year. That's partly because of the power of the VAX but
largely due to the DECmate. We sold about 600 licenses to our
office package that we call All-in-1. The average All-in-1
sale — the hardware and the software license — is about
$300,000. We see this market continuing to grow.
"We
are a fast growing and significant factor in the office market
and, as far as I know, we have not lost an office bid to the
biggest word processing company in any new account. This is
because our offering with the DECmate and the VAX is so
strong."
Administrative problems
"When
we made administrative changes this last quarter," explained
Ken. "We did not fully appreciate the important contribution
of large numbers of people who, through the years, were able
to work with these complexities and keep control of them. We
are now slowly, carefully — without introducing new problems —
setting about to correct this. We think we understand the
problems, and we think we know how to take care of them.
"As
it turned out, we got way behind in acknowledging customer
orders. We had trouble putting the orders together; and the
tally we had during the quarter wasn't correct. So we didn't
know we were in trouble until well after the quarter was over.
"The
beauty of this kind of problem is that it is relatively easy
to fix, and in the key parts of the company, which include
personnel and products, we're stronger than ever. I'm more
enthusiastic about the company than I ever have been in the
past and more proud of our organization and our products," Ken
emphasized.
Personal computers
Discussing
the personal computer market, he observed that personal
computers are an offshoot of the minicomputers that Digital
introduced 26 years ago. "We have always made computers that
are inexpensive and small enough and fast enough that
individuals can interact with them. A personal computer is
simply a specialized minicomputer. In fact, our Professional
computer and our latest minicomputer use exactly the same set
of processor chips. The technology is the same, and, as a
subset of our normal range of products, personal computers are
a key part of our overall strategy."
"We
were somewhat late in getting into this market. We aim for
computers which are more rugged, with more industrial quality,
and better designed to suit the way people work. Our personal
computers are designed well enough for someone to use them
comfortably for six, eight, ten, even twelve hours a day.
"This
last year, there were delays in getting some of our software
-— some we generated and others were generated by outsiders.
Now those delays are behind us, and people are beginning to
recognize the importance of our quality designs."
Strength in products
Ken
pointed out that Digital's most successful products — the
PDP-11 family of 16-bit minicomputers, VT100 video terminals
and the VAX family of 32-bit super-minicomputers — were all
initially criticized as being "late."
"For
several years, we were lambasted by the press for not having a
16-bit computer. But we worked at it until we had a design we
thought could last foreer.
The machine we inroduced in 1970 was more expensive and
more complicated than the competition, but it had all the
features that we wanted, and it became a standard in the
industry. And now, after thirteen years, one of the most
recent additions to that family -- the MICRO/PDP-11 -- is the
hottest selling item in our stable. We have increased
production at least five times in the last four months, and
people can't get them fast enough. That's because they are
small, inexpensive and fast; with all the qualities we
designed into the family and all the software that has been
developed for it over the years.
"When
we introduced the VT100, it looked like the world did not need
another video terminal. Tehre were many other terminals
already on the markeet. The prices were low. It was a very
competitive market. We designed a terminal that had all the
features thata we, as users of terminals, thought were
necessary. Our price was high compared to the competition, and
it didn't look like people would want to pay extra for the
added features. But people slowly elarned about those
features, and our share of the business grew. Soon the VT100
became the indsutry standard.
"It's
probably the most copied piece of electronics in the history
of man. The world is now full of them, because we insisted on
not making the lowest price but making the highest quality."
Digital
will soon announce the replacement for the VT100 — the VT200
family (see related story). It has the same size picture the
VT100 features plus new features, but in a far expect it, too,
to become the standard," he boasted.
"The VAX story sounds like the others," he
went on. "When we
designed the first member of the VAX family, it looked like
there was no room in the market for anotoher 32-bit computer.
That, of course, challenged us to amke one that was good
enough to last. We
built enough addressing space into it to last for a long time.
We built all the features, all the conveniences, all the
safety factors, all the checks we could think of. When we came
out with it, it very quickly became the standard of the
industry. In CAD/CAM work, industrial control, factory
control, and many education applications, it is the standard
computer. Our
biggest competitor openly admits that they are trying hard to
make a computer to match the VAX."
He
pointed out two new VAX computers tht were on display for the
shareholders -- MicroVAX I and the VAX-11/725. "The MicroVAX
fits in a very small box.
It is so compact that it will open up entirely new
applications. And soon, with that, yhou will be able to make a
personal computer with much of the power of a full-size VAX.
Another version of the MicroVAX, which will be even smaller
and faster, is also in the works."
The
VAX-11/725, a machine announced just a few weeks ago, is a
VAx-11/730 repackaged in a neater, smaller box, with a very
quiet fan. The appearance, the smallness and the quietness
make it particularly appropriate for the office.
"Every
fiscal year we add features to our large VAX machines. This
year we plan to add even more, and late in the fiscal year we
are going to come out with a long waited for, much larger,
many-times-faster VAX. It's coming along very well."
With
regard to networks, Ken noted, "Digital has always been the
leader in interconnecting computers. We have interconnected
large numbers of our computers, often with those of other
vendors, into networks that are complex and efficient."
Pointing
to a cable overhead, he demonstrated the simplicity and
elegance of Ethernet. "You simply run this cable all through
the building or buildings you want to interconnect, and
wherever you want to hook up a computer, you just clamp that
black box transceiver on the cable and run a wire down to your
computer. The Ethernet cable can be more than a mile long and
can be tapped into over a thousand times.
"We
can tie any number of large VAX systems on Ethernet to
communicate with each other and anyone else. In addition, we
can connect VAXs together in clusters. Clustering provides the
ability to tie a number of VAXs together with a number of disk
files to share load, to gain speed, to gain redundancy for
approaching fault-free computing and to protect, duplicate and
optimize disk storage."
Conclusion
"As
this world of computing narrows and as competition gets
stronger and smarter, it's important that we increase the
productivity of our individuals and organizations," Ken
concluded. "It's important that we make changes. It's
important that we take chances, and we're enthusiastic about
this opportunity.
"The
business is more fun than ever, more exciting than ever, and
we look forward to the coming years with much more enthusiasm
than any time in history."
The
following is a sampling of shareholder questions and Ken's
answers.
Could you elaborate on the
administrative problems? And how long will it take to fix
them?
"Administrative
procedures are not normally the sort of thing that gets raised
to the top level. They are left to the group that is
responsible for them. Now, one group making a mistake isn't
bad, and they learn right away. In this case, several groups
made mistakes at the same time.
"Now,
I'm not out looking for blame or to get anyone who made
mistakes. We are systematically fixing the problems. I think
it's a matter of months and hopefully we can take care of all
the customers while we are doing it. However, when you get
behind in administrative things like this, it. does take some
time."
Have you made any decisions about what
to do about expense levels?
"With
poor first quarter results, we will be thorough and energetic
about cutting back on expenses. Whereas other large companies
in similar situations have had large layoffs, we need our
people. Our strengths are in our products and our employees."
Why is the high performance VAX late?
"In
R&D, we always stretch beyond what is easy. For our high
end VAX, we set out to be technological leaders. That meant
that we had to learn. We made a number of false starts, and
some people who set out in the same period of time to make
simpler machines with off-the-shelf technology finished their
designs faster. But we have no apologies for wht we're doing
here.
"In
the past, when we designed a computer, we were always
dependent on having one very smart person who could
undeerstand the whole machine. This machine got to the point
of complexity wehre no single person could understand it. More
organization was needed to develop it.
Also,
in the past, we were dependent on building a prototype machine
fairly early and then trouble shooting it a piece at a time,
mechanically. With large nubmers of complex integrated
ciruits, that approach was impossible with this machine.
:So,
well along in the project, we decided to change our approach.
We installed walll-to-wall VAXs and some DECsystem-10/20s to
simulate each piece of the new computer. For months, running
those machines 24 hours a day, we simulated every single piece
of that machine and made corrections before one was built. So
when the prototype, with that delay, was put together, there
were almost no mistakes in it.
For what we're learning there, it is well worth the
delay, because it's a technique we'll use in every machine and
eventually even in our small machines. We're proud of it."
Is the business becoming more
competitive?
"During the years of recession, things
have been more competitive. Now IBM is aiming directly at us,
formally copying our procedures and techniques and the way
we've done some things technically. They're embarassed by our
success. So, yes, from that point of view it will be
competitive.
"That's going to be part of the technical
challenge we have in products, in selling, marketing and
organizing, but we'll match our technology against anybody. So
we look forward to the contest."
Announced earlier this month, the VT200
video terminals are small, quiet, light-weight successors to
the extremely successful VT100 family. With all the same
features, plus some new ones, VT200s sell for about 30 to 40
percent less than their counterpart VTlOOs.
The new features improve ease-of-use and
provide capabilities that will benefit programmers, and OEMs
in particular. For instance, character sets can be downline
loaded from a computer to the terminal. In other words, a
terminal could be quickly converted into a pharmacy inventory
system or some other specialized system, with symbols unique
to that application loaded from a remote host. Also, special
function keys carry out tasks that otherwise would take whole
sequences of individual keystrokes. For instance, the user
could log onto a system to get Dow Jones information or to use
electronic mail by pushing a single key.
There are three models. The VT220 sells
for $1295. It has the same keyboard as Digital's personal
computers, and a wedge-shaped monitor, slightly larger than
the personal computer monitor to accommodate the logic for the
terminal.
Selling for $2195, the VT240 has all the
text capabilities of the VT220 plus monochrome graphics
similar to the VT125 (which sells for $3800). Both the monitor
and the keyboard are the same as those of the PC. The logic is
contained in a separate small box.
The VT241, the color version, with the
13-inch PC color monitor, sells for $3195. (To get color with
a VT100 requires two separate monitors at a cost of more than
$5000.)
The VT220 was engineered and is being
built in Taiwan, with close links between Engineering and
Manufacturing. The 240 and 241 are being built in Albuquerque.
"We are going to have product on the
shelf and be ready to ship orders the day we announce — Nov.
15," says Art Campbell, manager, Terminals Product Group.
"During the balance of the fiscal year we'll be able to
deliver as many VT200 products as VT100 products. We have
about equivalent manufacturing capacity in both lines. That's
about six months ahead of where we traditionally are with new
product announcements."
Bill
Helm has been elected Treasurer by the Board of Directors. He
replaces George Chamberlain, who has been named vice president
of Engineering Finance .
Bill
joined Digital six years ago and has held various positions in
the Treasury Department. He spent the last two-and-a-half
years as the F&A manager in Europe.
Ed
Kramer, vice president, Corporate Marketing, has been given
full responsibility for marketing and selling Digital's full
line of personal computers. He will coordinate all activities
in this area, and will elevate and respond to related policy
decisions.
Rainbows
and DECmates will continue to be sold through the channels,
but Professionals will be limited to direct customer sales,
except when specifically requested by dealers. Responsibility
has been given to Bill Long for the establishment of direct
sales to the educational, scientific and medical markets.
A1
Crawford, who was recently named Corporate Marketing Finance
and Planning manager, has created a support organization
staffed by Ken Swanton and Jim Bailey.
Ken,
who will manage the Corporate Planning and Market Analysis
department, will be responsible for the development and
implementation of processes that will improve communications
about and management of Digital's market businesses. This
includes strategic/LRP and market segment reporting,,
Jim,
who will be in charge of Corporate Pricing & Competitive
Analysis, will be responsible for adding more in-depth
analysis to strategic pricing decisions throughout the product
life cycle. He will also develop data bases and simple
processes to serve all functions in Digital relative to
gathering information about the competition, analyzing it and
assuring the results are readily available when needed.
Kevin
Sullivan has been appointed U.S. Field Personnel manager,
reporting to Dick Walsh, Field Operations Personnel manager.
He will be responsible for the delivery of personnel services
for the Field organization in the United States.
Kevin
has been with Digital for the past eight years, and most
recently was Corporate Compensation manager. Prior to that, he
was the European Personnel manager for Digital.
A
sales referral program is being developed to give employees
the information they need to help friends and colleagues
purchase Digital's personal computers. The referral program is
being designed to dovetail with the Employee Personal Computer
Purchase Program and the Learning Center activities in the
company. The total effort is intended to help employees
understand and enjoy using our personal computers so they are
comfortable talking to other people about the capabilities of
this equipment.
"If
employees are turned on by using our personal computers, they
will become a natural salespeople," explains John
Alexanderson, manager of the Installed Base Group and the
person responsible for developing the comprehensive referral
program.
"We
want to be certain that all potential issues about the
referral program are clearly resolved before we implement
anything. Past frustrations employees have encounterd with
order and referral requests are being taken into consideration
so that we come up with the best possible system," notes John.
He adds that the program will be announced within the month
and, in order to succeed, it needs the full support of
managers and supervisors.
Learning
Centers have been set up in 21 sites to give employees the
opportunity for hands-on experience with the personal
computers. It is Digital's intention to expand use of these
centers in order to help as many employees as possible to
become computer-literate and comfortable with the equipment.