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Volume 5 Number 3________________________________________________________________
May 1986
Looking At Q3
Results by Jim Osterhoff, vice president and chief
financial officer
Life Insurance
Changes Coming Soon prepared by Corporate Compensation and
Benefits
(In his keynote address at the recent IDECUS
Symposium in Marlboro, Mass., Ken Olsen, president, talked about
the problem of motivation in good times.)
"Good times are much more dangerous than hard
times. When we were short of orders, coupled with the economy, we
always complained and were looking forward to good times. But then
our goal was clear — to get more orders — and everybody worked
together to meet that goal. It's easier to work hard when you’re
in trouble.
"In good times it's hard to stay motivated, and
it's easy to have conflicts rather than to work together, because
somebody thinks somebody else isn't working hard or other people
are getting more than their fair share.
"We accomplished a lot during these last two
years. The company has never been in such a strong position.
"IBM has too long been enjoying its position of
being on top of the world. They enjoyed enormous popularity, and
people blindly bought everything they built.
"Now I expect that they are concerned. They
must have had enormous motivaÂtion to lower the prices on their
highly profitable big machines. So we can't let short-term success
turn our heads. We have to remember that they are seven times
bigger than we are.
"Today, we are the only company that does
networking. We are on top of the world in terms of products. But
many potential customers believe that all they have to do is wait
for IBM to come out with what they need. We simply can't afford to
relax and let IBM catch up technologically.
"IBM has a hodgepodge of computer architectures
and software systems and networking techniques. But they're
working on that problem. We've set the standard for compatibility,
and now they are driving hard toward that goal.
"Of course, you don't easily solve the problems
of having gone in many different directions. But IBM is motivated;
so we have to make sure we stay motivated.
"It is in the nature of organizations to not
work together. But we won't survive unless we do keep working
toward one goal and one strategy. And we must do this work
together. This is no time to relax."
By all reports, the general order situation in
the computer industry conÂtinues to be soft. And while there is
much speculation on the reasons why, there don't seem to be good,
definitive reasons for it.
Despite the general industry softness, at
Digital we’re seeing tremendous interest in our products and
capabilities. We have said before in this "slump" that we may be
part of the cause -- ironically, because of the availability of
new products and new capabilities. I believe this is true today.
Computer purchases are becoming more strategic decisions which
take longer to make. Instead of buying a single machine to do a
specific task, customers are beginning to look at their
longer-range needs and the way each new computer they buy will fit
within their future network. To the extent that customers are
thinking this way, it plays to our strength.
We are very optimistic about our new products,
the way we're dealing with customers, and the reaction to DECWORLD
'86, which was a tremendous marketing success.
We believe we are doing better than the
competition and that we are gaining market share. The feedback
from customers is very positive. And it's gratifying to see our
position in the industry being recognized in the press. Our
financial progress, the capabilities of our new products, and our
success in the marketplace are all reflecting favorably on
Digital.
In a financial sense we have made excellent
progress, although our absolute results are still less than
satisfactory. We have succeeded, however, in raising outside
expectations for the future. This is evidenced in the price of our
stock, which has out-performed all other companies in the
industry. A year ago our stock was selling at about a 40% premium
to book value. The premium is now roughly 100%. So the
expectations of our future profit growth are considerably higher
than they were a year ago.
We continue to show good progress in margin
performance and in asset manageÂment. One relationship that is
particularly meaningful is that of operating profit margin to
revenue growth. During the 1983-85 period, revenues were going up
at the rate of 25% a year and margins were not improving at all.
During the first three quarters of this year, revenues were up 12%
over a year ago, and profit margins improved from 7.3% to 9.3%. In
Q3, our operatÂing profit margin (pre-tax) was 11.6% — the first
time in 14 quarters that we have been in double digits.
Another way of tracking profit progress is the
rate of cost increase in relation to the rate of revenue increase.
In the 1983-85 period, our costs were increasing at a rate of 24%
a year. So far this fiscal year our rate of cost growth has been
10%. This is the most significant factor in our margin
improvement.
We're still recovering from the pre-FY86 period
of high cost growth and margin deterioration; but thanks to the
hard work of many people, it appears we are on the right track.
During the last two quarters we have made sigÂnificant progress in
the direction of our objective. If we continue to plan and execute
as we have been recently, we should get back to the margins of the
pre-83 period, which we need to sustain our historical growth
rate.
In the area of asset management, dramatic
improvements in manufacturing inventories are continuing to be
made. And the recent progress has been achieved at a time when we
have a lot of new products, which in isolation causes inventories
to go up. Inventory improvements are also evident in Field
Service.
At nearly $2 billion, our cash balance exceeds
our total liabilities. Our capital structure is also very sound.
Because of the strong performance of our stock, we met the early
redemption requirements of our $400 million convertible debt and
were able to convert it to equity. This reduced our debt ratio
(debt as a percentage of total capitalization) from 15% to about
8%.
While we strive to reach our financial goals,
and take pride in the exÂcellence of our products, we must
remember that the best way to ensure continued success is to
emphasize customer satisfaction at all levels of the company.
Customer satisfaction means more than a competitive product
advantage. It means being a quality organization in every respect
-- including the quality of our products, efficiency and
responsiveness in processing orders, and a genuine interest in
solving customers' business problems. We want to make everybody
feel good about doing business with Digital.
In just a year and a half Digital has taken the
VAX family, its very sucÂcessful industry de facto standard, and
extended the range down with MicroÂVAX II, and up with the VAX
8500, VAX 8600, VAX 8650 and VAX 8800. Also, all the mid-range
machines (an older generation of VAX-11/730, VAX-11/750 and
VAX-11/780) have been replaced. That's phenomenal from an
engineering, manufacturing and marketing point of view.
And we're already shipping these new VAX
systems in volume. In the past, it would have taken us a year to
go from announcement to high-volume shipment for a single product.
Just 18 months ago, the VAX-11/785 was the top
of our line of VAX systems. Today, because our range has expanded
both upward and downward, a new machine twice as powerful as that
one, the VAX 8500, is now our "mid-range" VAX system.
The introduction of the VAX 8500 was a
marketing-driven decision. In the design for the new systems, we
built in modularity to give us the flexiÂbility to produce a set
of products, not just one. So today we are in the enviable
position of being able to decide, based on market factors, what
machines to introduce and at what price and performance levels.
We've got some ammunition, and we've got some time to think about
it.
Of course, "mid-range" is a relative term, and
its meaning at any time depends on the state of technology, which
is constantly changing. The PDP-11/34 was the mid-range of the
PDP-11 family and Digital's largest revenue generator for years.
But today that would be considered a "low-end" machine. Today's
Rainbow has more memory than the old PDP-11/34, and there are some
applications that run faster on a Rainbow. In fact, you couldn't
run Lotus software on a PDP-11/34 because it requires so much
memory.
Over the last 10 years, computing power and
memory have become very inexÂpensive. And that trend should
continue over the next five to 10 years. For instance, in the area
of memories, the industry will go from 1 megabit RAMs, to 2
megabit RAMs, to 4 megabit RAMs, doubling every few years.
We've moved from an era when you needed all the
computing power you could get just to keep things going, to a time
when you have huge amounts of comÂputing power available to make
quantum improvements in the way people do their jobs.
So for a given price range, compared to 10
years ago, today's technology provides the customer with a
tremendous amount of additional power. The PDP-11 was a
departmental machine. It would typically have 8 to 32 users and
would be used to run a department. When the first generation of
the VAX family was introduced, customers started using VAX-ll/780s
and VAX-ll/750s as departmental machines, typically with about the
same number of users they had with the PDP-11/34, but doing far
more things, far more efficiently.
Now we have taken another quantum leap. And we
expect the VAX 8500 to do the general-purpose departmental jobs
that those earlier "mid-range" machines did years ago. This new
system is right at the heart of our lineup. In fact, the whole new
family of VAX systems has the potential to be the largest
revenue-generating product set we’ve ever announced.
MicroVAX and personal computers are basically
on-the-desk or beside-the-desk machines. The high-end VAX 8800 and
VAX 8650 are big machines intended for use in computer centers and
clusters as a corporate resource. The VAX 8500 is more
departmental.
We expect that mid-range computers will
continue to be a critical part of our business for many years to
come. Our customers want lots of computing power right on the
desk, but they also need access, through networks, to more
powerful departmental machines. As the computers on the desk get
more powerful, the larger machines have to get more powerful also
to keep the same relationship.
People who want the performance of a VAX-11/780
or VAX-11/785 will buy either a VAX 8200 (with the same
performance as the VAX-11/780) or a VAX
8300 (with the same performance as the
VAX-11/785 in compute-intensive applications) . People who want
more power than that will choose the VAX 8500, which offers twice
the power of a VAX-11/785 at the same price. Those who want more
than a mid-range computer and have more money to spend will move
up to high-performance systems like the VAX 8600, VAX 8650 and VAX
8800.
The VAX 8500 is targeted to be a very
cost-effective price/performance machine, filling the gap between
the VAX 8300 and the VAX 8600 and VAX 8650.
The VAX-11/780 was an extremely competitive,
industry-standard product for eight or nine years. But today in
the computer industry, as competitive pressures lead to rapid
development of ever more powerful and less expensive systems,
product lifetimes are shrinking.
To succeed in this environment, we have to
figure out how to get longer life out of each design, with
repackaged, faster and less expensive versions of the same basic
machine design. At the same time, we are constrained from
producing too great a variety of machines.
At the user level every VAX computer is
identical —- all running VMS softÂware. But at the systems level,
changes in technology mean we have to change parts of the
operating system for each particular set of hardware; and we can
only afford to maintain so many different versions of the
operating system before that becomes a big burden.
Also, every new machine we introduce entails
investments in spares and Field Service training for many years to
come. So, while it’s vital to design in the flexibility to get the
most out of our basic designs, we also have to carefully choose
which configurations to actually build and sell.
For years, we had thought that someday
Digital's role in the computer industry would change. Suddenly, it
has. Thanks to this second generation of VAX systems, Digital is
no longer a "niche" supplier, but rather is a very significant
factor in the entire computer business.
Part of this change is due to the expanded
breadth of our product line, both at the high and the low ends.
Part of it is just the sheer physical size and inertia of the
company as a whole. Digital is the second-largest comÂputer
company in the world and the leading manufacturer of networked
comÂputer systems. That means that when we make incremental growth
moves, those changes have significant impact not only internally
but to the industry at large, both in terms of units and dollars.
So we have finally gone through that transition
to become one of the most important players in the industry as a
whole. It’s an exciting time.
"'Digital Has It Now!' We have been spreading
this message to our customers through DECWORLD '86, through our
corporate advertising campaign, and during each and every sales
call," says Jack Shields, vice president, group managÂer. "Our
products give our customers a two- to three-year competitive
adÂvantage in developing solutions to their business problems.
"Among computer industry consultants and
financial analysts, a consensus is forming. From the Wall Street
investment firms to the magazines on the desks of MIS directors,
people are saying that Digital is in one of the most powerful
positions it has ever commanded.
"Although there are challenges still to be met
in FY86, I would like to share with you the following quotes from
leading industry and financial analysts. We can all be proud of
how these opinion makers are talking about us, about our products,
and about our future."
Financial
position
"With
computer customers now demanding networking and communications
instead of standalone personal computers, DEC — the industry
leader with more than 35,000 installed network nodes -- has seen
strong demand . . . The revival of DEC also reflects the
insuperable advantages of a massive installed base and vast
libraries of application software ... DEC is now unequivocally
IBM's most successful antagonist . . . Its compound annual growth
rate since 1975 is a remarkable 28.8%. In a decade of spectacular
growth, DEC has been the most important and consistent growth
company in the computer industry."
(Electronic Business,
1/1/86, "Blue Battlers: Winning on IBM's Home Court")
Digital
vs. the competition
"IBM, the argument
goes, has now compounded the crime of high systems overhead with
confusion caused by ubiquitous but underused desktops. Arguments
such as these have worked for DEC because the simple truth is that
DEC is in the enviable position of being able to sell against
IBM's greatest weaknesses: Big Blue's hidden costs, its mainframe
based centralization, its proliferation of hardware families
running incompatible software, its traditionally high pricing and
its chronic underachievement in scientific markets."
(Electronic Business, 1/1/86, "Blue Battlers:
Winning on IBM's Home Court") "Networking is DEC's Strength"
"In office automation, DEC has a leadership
position while IBM still does not have fully integrated office
automation software." "The factory is DEC'S traditional
stronghold; it is NOT an IBM traditional stronghold. The fact that
DEC is now a power in both the office and the factory suggests
that the company will play a major role in integrating the factory
with the office." (Salomon Brothers, 12/26/85)
"While the size and
marketing power of IBM mean that the introduction of its
workstation is an important industry event, we believe that the PC
RT will not significantly alter the market potential and
profitability of the workÂstation products of DEC, the MicroVAX II
and VAXstation II/GPX ..." so concludes Marc Schulman of Salomon
Brothers. He bases his statement on the following considerations:
The PC RT does "not establish a new price/per- formance standard,"
IBM falls short of DEC in networking capabilities, and it does not
support proprietary operating standards, thereby limiting
migration paths for workstation customers.
(Salomon Brothers, 1/27/86)
VMS
Software
"For interactive applications like transaction
processing, DEC'S VAX line offers significant advantages to the
IBM 43XX series. DEC'S VMS operating system is the key: It's
specifically designed for real time, interactive processing. VMS
and all DEC application software run on each succeeding addition
to the VAX line. IBM's systems don’t enjoy such software
conÂsistency. The VAX line's ability to network and communicate
with IBM systems is an additional benefit to users."
(Statement made by Sonny Monosson in the
following article, Computer Decisions, 1/2/86, "DEC Lifts its
Sights to IBM Territory")
Networking
"With customers for 4,000 local area networks
and 50,000 Ethernet connecÂtions with more than 500,000 users,
Digital has demonstrated its ability to sell networks. The
Standard Networking Packages, SERVpak, DECsite, and NETcare
demonstrate not only Digital's networking prowess, but its
marketing savvy as well."
(Sandra Gant, Infocorp, 3/25/86) MicroVAX II
"MicroVAX~Il may well become one of the most
successful products ever inÂtroduced by any computer company. We
now expect 20,000 to be delivered in Fiscal Year 1986 (prior
forecast was 15,000)."
(Jay Stevens, Equity Research, Dean Witter
Reynolds)
"The MicroVAX II is the hottest product in the
industry . . . MicroVAX II could be roughly $1 billion in fiscal
1986 . . . Demand for the MicroVAX II as a department processor
has been surprisingly strong because the MicroVAX II is a 32-bit
processor that is more powerful and less expensive than IBM's
16-bit System/36."
(Marc Schulman, Salomon Brothers, 12/26/85)
VAXstation II/GPX
"The Digital announcement (GPX) 'raises the bar
another notch' for graphics performance levels needed to
effectively compete in the technical workÂstation marketplace . .
. One thing is clear: competition in the technical workstation
marketplace is becoming more intense ... We believe that the
company with the largest application software base will maintain a
large degree of control of the market, and that Digital clearly
controls that base in the engineering and scientific markets."
(Brad Smith, Dataquest Research Newsletter,
2/17/86) VAX 8650
The recent 8650 announcement should ease MIS
managers' concerns about getting locked into static machines.
David Moschella, Director of Systems Research at International
Data Corporation states, "MIS managers in highly interactive,
timesharing situations could definitely consider the 8650 alone or
in a VAXcluster as an alternative to a mainframe."
(Computer Decisions, 1/2/86, "DEC Lifts its
Sights to IBM Territory")
VAX
8200, 8300 and 8800
"With the introduction of these new products
(VAX 8200, 8300, and 8800), DEC has introduced six new VAX
processors . . . within the past 15 months. This unprecedented
flow of new products has materially improved DEC'S competitive
position relative to both IBM and the company's smaller rivals. In
our view, DEC'S product positioning has never been stronger than
it is now."
(Marc
Schulman, Salomon Brothers, 2/3/86)
"DEC now
unquestionably has the best line of compatible minicomputers in
the industry ... Of perhaps greater importance than the renewed
sales momentum these offerings portend is the fact that they are
essentially minicomputer- priced products that have
microcomputer-like production costs .
.. These new VAXs are a major plus to DEC'S operating
profitability."
(John Levinson, Goldman Sachs, 2/18/86)
The
future
"DEC
continues to shine despite a tough overall environment . . . DEC
is extremely well positioned for further market share gains and
margin exÂpansion . . . expenses are under control . . . the new
products have considerably higher margins than those they replaced
. . . while component prices have fallen, pricing is holding up
pretty well for the quality vendors . . . consequently we believe
that any significant improvement in the economy could make our
margin expansion projections (for DEC) appear too conservative.
The upside leverage is high."
(Stephen Smith, Paine Webber, 12/20/85)
NOTE: The quotes
provided here are for informational purposes only. They represent
the opinions of the analysts who wrote them. This article is not
for use outside of Digital Equipment Corporation and should not be
reproduced.
The successful introducton of the VAX 8650
Standard Memory Unit signalled a major change in the base
technology used in Digital's standard products. This product
depends on the use of Surface Mount Technology (SMT); and from
this point forward, most major new Digital products will contain
surface mounted devices.
Surface mount technology is a manufacturing
method of attaching electronic components directly to the surface
of a printed wiring board rather than inserting component leads
into holes drilled in the board. This new methodÂology has the
potential to increase manufacturing productivity at lower cost,
improve system integration through increased density and improve
product performance by shortened interconnection paths.
In the manufacture of memories, like the
Standard Memory Unit (SMU) in the VAX 8650, the advantage of
surface mount is in being able to put a lot of memory into a very
small space. The advantage of surface mount in CPUs is performance
— being able to run CPUs at very high clock rates without havÂing
long signal runs. Surface mount packages are more effective for
interÂconnecting LSI chips with high lead counts. That is the
reason a surface mount package was chosen for the MicroVAX II
processor chip.
Surface mount is a sophisticated process with
many subtleties. As is the case with semiconductor manufacturing,
the only way to achieve reliability and performance is by tightly
controlling the process at every step. Using traditional
manufacturing procedures, the whole process can be ruined in the
first step and you might not know that anything had gone wrong
until you get to the end product, or even worse, in field
performance. With surface mount technology, quality and test go
away as separate functions because they become integral parts of
manufacturing. Everything must be verified as close as possible to
the process operations. Achievement of the cost and quality
potential of surface mount depend upon careful plant design and
the meticulous practice of process control.
For new technologies like surface mount, we can
no longer make design decisions without considering what the
impact will be in manufacturing. The successful manufacture and
delivery of a product is directly traceable from the design
process through the shipping dock.
Space savings with surface mount depend on the
design of the circuit board. For instance, today it’s possible to
put four times the amount of memory in the same space as before.
As component manufacturers increasingly focus attention on surface
mount packages, we expect that space improvements will double
again.
As component volumes transition to a high
percentage of surface mount packages, the surface mount devices
are rapidly becoming less expensive than traditional devices. In
addition, the reduced space used on the circuit board can mean
significant cost savings. Performance gains are typically two to
three fold, depending on the design.
The performance gains relate to the fact that
as LSI speeds increase, the biggest delay in the operation of
systems of semiconductor devices is the interconnection between
devices. With surface mount, we can put the devices closer
together because we no longer have to mount them on holes in the
boards, so the distance is no longer limited by how close we can
put holes in a board. Speed is related to distance. If we can
halve the distance between devices, the signal completes its
journey twice as fast.
The next generation of VAX products will get a
significant portion of their boost in performance from the
effective utilization of surface mount techÂnology. Surface mount
is just the beginning of a series of waves of techÂnology change.
There are other important technologies coming along, such as Tape
Automated Bonding (TAB) and multi-chip packaging. To be successful
in inplementing these new technologies we have to master surface
mounting techniques as a first step.
Today, we place higher demands on our surface
mount process than any other company in the world. We’re producing
very large multi-layer boards with high leadcount I/Os in volume.
We’re using surface mount on boards three times the size of
products we see coming from Japan.
Surface mount requires a number of important
changes in the way we manuÂfacture our products and even the way
we think about manufacturing. In a traditional manufacturing
environment, we can put components on circuit boards and then test
them, because the components and all the test points are visible
and accessible. In the surface mount process, when you put the
component on, the test point may be hidden under the component.
There is no place to test it. And even if you could find out what
is wrong, you probably would not be able to repair it. Therefore,
to make a quality product, you make sure that the process stays
within its performance boundaries and that all the inputs to the
process — the raw materials — meet or exceed the specifications
required.
Traditionally, in manufacturing, if we make a
mistake we can repair the product. So we design products to make
it easy to repair them, and we set up manufacturing and field
service operations presuming that we'll do a substantial amount of
repair. With surface mount, if we make a mistake in the process,
the damage is probably irreparable. Consequently, the process has
to be very nearly perfect — much closer to perfection than
anything we've seen before, except in semiconductor manufacturing.
Defect levels in the range of five to 10 parts per million are
required. Already the Salem surface mount line is achieving better
quality than is considered acceptable in traditional module
assembly.
We are going through a mind-set change. We no
longer fix the product; we fix the process.
The technology for Digital's surface mount
process was developed by the Process & Design Support group in
Andover, Mass. The surface mount process was transferred to the
Salem, N.H., manufacturing facility. Salem will continue as the
surface mount process development line for the company. In
addition, we are transferring the manufacturing process from Salem
directly to other manufacturing sites. For instance, Augusta,
Maine, uses surface mount in many of the communications options
built there. Westfield, Mass., uses surface mount in building the
MicroVAX II. Enfield, Conn., and Clonmel, Ireland, also have
surface mount capability. The total surface mount process will
soon be transferred to the Singapore facility.
The introduction of surface mount is being
coordinated and supported by a • Technology Program Office under
Bill Bennett and a Manufacturing Program Office under Paul
Sturgis. This provides a focus for process development and
technology transfer for this major cornerstone of our future
electronic assembly process.
Roger reports to Bill Heffner, vice president,
Software Systems, and is responsible for the technical direction
of the Software Systems Group. Roger joined Digital in 1973. He
subsequently became directly involved in the development of
RSX-11M, and worked on the initial design phase of DECnet products
and VAX/VMS version 1 software. He also worked as project leader
on the VAX-11 PL1 and VAX-11 C compilers and was a key contributor
to VAXELN and MicroVAX I. Roger is co-author of a book on code
generation and holds a Bachelor of Science degree from Worcester
Polytechnic Institute.
Bob reports to Don McInnis, program manager,
Advanced VAX Engineering Group. He was systems architect for the
VAX 8800, introduced in January, providing technical leadership
for the design team in the areas of hardware logic, microcode,
diagnostics, technology, and the power system. Bob joined Digital
in 1971, and served as a hardware designer for the PDP-11/70, the
VAX-11/780, and CI Bus. He also played a
contributing role in the design of the original VAX architecture,
the PDP-11/45, and the BI, SBI, and SI buses.
Bob has been named a joint inventor in nine
patents that have been submitted by Digital. He holds B.S. and
M.S. degrees in electrical engineering from MIT.
Digital has announced the appointment of nine
senior managers to vice presidential posts.
Lou Gaviglia is responsible for the
manufacture of all Digital's large and mid-range VAX computer
systems, including the recently announced VAX 8800, VAX 8300, and
VAX 8200. Since joining Digital in 1967, he has held a series of
manufacturing management positions, including plant manager,
Salem, N.H., and manufacturing manager for the Commercial Group.
In 1982, he was named group manager, Computer Systems
Manufacturing.
Dan Infante manages the worldwide
Computer Integrated Manufacturing (CIM) Program Office, which is
responsible for the integration of information systems and process
technology throughout Digital's engineering and manuÂfacturing
organizations. He has been manager of Manufacturing Information
Systems since 1984. Prior to this position, he held a series of
manufacturÂing management positions, including Manufacturing
controller and group conÂtroller, Systems Manufacturing. He joined
Digital in 1973.
Ilene Jacobs is the Corporate Treasurer,
responsible for managing Digital's Treasury, Pension Investments,
Tax, Risk Management, and Customs groups. She joined Digital in
1974 as manager, Cash and Investments, Corporate Treasury
Department, and has held a succession of management positions
withÂin Treasury. She was appointed Assistant Treasurer in 1981
and Treasurer in 1985.
Ed McDonough is responsible for GIA
Manufacturing Operations, which includes Far East manufacturing
operations and Western Hemisphere manufacturing operations in
Puerto Rico, Canada, Brazil, and Mexico. He joined Digital in 1976
as group controller, Computer Manufacturing and Engineering. After
serving as group operations manager, Far East Manufacturing
Support Center, he was named senior group manager, GIA
Manufacturing and Engineering, in 1984.
Kevin Melia has served as group manager,
Manufacturing External Resources, since 1984, and is responsible
for manufacturing materials and distribution, including management
of Digital's manufacturing inventory and assets. Since joining
Digital in 1973, he has served in various manufacturing finance
management positions, including plant controller, Galway, Ireland;
group controller, Worldwide Systems Manufacturing; and manager,
Manufacturing Business Center.
Bob Palmer joined Digital in 1985 as
group manager, Semiconductor OperaÂtions. His responsibilities
include engineering, manufacturing, acquisition and test, and
marketing. He was one of the original founders of Mostek Corp.
Most recently, he served as executive vice president,
Semiconductor Operations, United Technologies Corp., which
acquired Mostek in 1980. He held a series of senior management
positions while at Mostek, which involved the development of
Mostek's first wafer fabrication facility, and responsiÂbility for
design engineering, product marketing strategies, and strategic
product development. He shares a patent for work in MOS integrated
circuit production processes, an accomplishment recognized by the
Semiconductor Equipment Manufacturing Institute as one of the most
significant technology developments in the integrated circuit
industry.
Bruce J. Ryan is the Corporate
Controller, responsible for financial planÂning and analysis,
budgeting, internal audit, fiscal and management reportÂing,
accounting policies and procedures, internal controls and the
financial development program. Bruce joined Digital in 1969 as
manager, Field FinÂance, and has served in a succession of
financial management positions, including Finance and
Administration Manager, Computer Products Group; Manufacturing
Controller, Galway, Ireland; and Finance and Administration
Manager, General International Area. He was named Controller in
1985.
David Stone is responsible for
establishing and developing the company’s international
engineering presence to ensure that Digital's products are
competitive worldwide. He joined Digital in 1970, and has held a
succession of management positions, including corporate manager,
Software Engineering; manager, European Software Services; and
acting manager, European EngineerÂing. In 1985, he was named vice
president, Digital Equipment International Europe. A member of the
Corporate Engineering Staff, he assumed full reÂsponsibility for
International Engineering and Strategic Resources in 1985.
Don Zereski is responsible for the
management of all U.S. field service business. Prior to becoming
manager, U.S. Field Service, in 1985, he managed Field Service
Europe. For 10 years before that he was manager, GIA Field
Service. Don joined Digital in 1962 and held various engineering,
manufacturing and product support management positions, including
responsiÂbility for Digital's worldwide mid-range systems support
between 1968 and 1974.
Digital is telling
employees in a mid-May announcement how their life insurance plans
will change on July 1,
1986, to offer them more options.
Having additional options will enable employees
to make selections that more closely meet their particular needs.
It will be easy for employees to purchase this low-cost coverage
during the oper enrollment period that ends Monday, June 16.
Your support, as a manager, is vital during
this open enrollment. You can help to ensure that employees
understand what their options are and why now is an excellent time
to re-evaluate their life insurance needs.
What is
changing
The life insurance changes are three-fold:
o New dependent life coverage. For the first
time, employees will be able to purchase life insurance to cover
their dependents under one of three Digital plans. These three
plans vary in price based on the level of coverage.
o Additional level of optional life coverage.
Employees can now cover themselves at a level of 3 times their
salary, in addition to the traditional offerings of 1, 2, 4 and 5
times salary.
o Age-bracketed rates for optional life
coverage. Instead of one rate for all employees, rates will vary
by age for optional life insurance. This change reflects both the
greater costs as Digital’s workforce grows older, and typical
insurance industry practice.
Why time
is of the essence
If employees return their completed enrollment
forms by Monday, June 16, coverage begins July L Once the June 16
deadline passes, however, the normal process resumes — employees
and their dependents must complete an Evidence of Insurability
form and may be required to have a physical exam before John
Hancock will consider their request. Not only is the usual process
time-consuming, but not all applications are approved. Unlike some
other benefits, there is no annual enrollment period for optional
or deÂpendent life insurance.
Since this is a limited opportunity, it’s an
excellent time for employees to seriously consider whether they
have the appropriate level of life insurance.
More
detail about employee life insurance
Three Digital plans — basic, optional and
dependent life insurance — are available to all regular employees
who are actively working at least 30 hours a week. Basic life
insurance is provided at no cost to the employee. The employee can
purchase the other two through weekly payroll deductions, and
benefits are paid in addition to the Basic Life Insurance.
o Basic life
insurance.
Employees automatically have life insurance
covering themselves worth $50,000 or twice their annual base
salary, whichever is less. This $50,000 is the most life insurance
Digital can purchase and still have the premiums Digital pays for
this coverage be tax free to employees.
o Optional life
insurance.
Employees can choose to
purchase additional insurance on themselves worth 1, 2, 3, 4
or 5 times their salary. If an employee who has purchased optional
life insurance should die, the beneficiary(ies) would be paid both
the basic and optional life insurance amounts. The weekly rate for
each $10,000 in coverage will be approximately:
o $.35 for those under age 35,
o $.51 for those ages 35 through 49, and
o $.67 for those age 50 or older.
For example, suppose you earn $24,200 a year
and want to purchase coverage at three times your salary. To
determine your coverage, simply round your salary up to $25,000
and multiply by three. To purchase this $75,000 in Optional Life
Insurance coverage, your weekly cost would be:
o $2.60 if you are under age 35,
o $3.81 if you are age 35 through 49, and
o $5.02 if you are age 50 or older.
By comparison, the weekly cost used to be about
$.35 for each $10,000 of coverage for employees of all ages.
o Dependent life
insurance.
If an employee has eligible dependents, that
employee can choose one of three plans:
COVERAGE FOR
|
|
Spouse |
Each Child |
Weekly Cost |
||
|
o |
Plan |
A: |
$10,000 |
$3,000 |
$ .50 |
|
o |
Plan |
B: |
$20,000 |
$6,000 |
$1.00 |
|
o |
Plan |
C: |
$30,000 |
$9,000 |
$1.50 |
An employee either has dependent coverage or
doesn't. The number of dependents does not affect the insurance
levels or rates. Through this packaging, the reduced
administrative costs allow Digital to offer dependent coverage at
these low rates.
Employees who choose dependent life insurance
coverage will have the first three months of coverage for free.
Dependent coverage will begin on July 1, but the weekly deductions
will not start until October.
The employee will name a benef iciary( ies) for
the basic and optional life insurance plans. The same
beneficiaryfies) will apply to both plans. The employee is the
beneficiary of dependent life insurance.
Conununication
Strategy
and Schedule
The
conununicat ion plan uses a variety of media with the theme that
highÂlights "picturing your future . . . and drawing your own
conclusions." The intent of this theme is to remind people, with a
light treatment using crayons and children's drawings, that the
future is fairly uncertain . . . and that this uncertainty can be
offset by employees doing some planning now. And now is the time
for employees to be "quick on the draw" to take advantage of the
opportunity to tailor their program without hassle until the June
16 deadline. This approach reinforces a continuing theme in our
benefits communication -- that employees are responsible for
making benefits decisions; no one else can do it for them.
Specifically, the scheduled communication are:
|
Early May |
Training Kit. PSAs/PAs throughout
Digital received a training kit to provide them with
background and material to conduct employee meetings about
life insurance. (Employee meetings can be conducted at
each area's discreÂtion, and should begin, if possible, in
mid-May after employees have received the personalized
information.) Posters. Posters have gone up
throughout Digital introducing the theme and announcing
that information is coming. |
|
Mid May |
Brochure, personalized enrollment form
and preaddressed envelope. These pieces are being sent to
employees' homes so they can learn about their options,
know their current enrollment status as well as how much
the different options will cost them. If employees decide
to purchase additional coverage, they also have the
convenience of having the enrollment form and
pre-addressed, postage-paid envelope right there. Employees newsletter article. An
article will appear in employee newsletters within Digital
and discuss how to determine the appropriate level of life
insurance. |
|
Early June |
Posters. Posters will go up announcing
the enrollment deadline. |
|
June 16 |
Enrollment deadline. The envelope
containing the employÂees' completed enrollment form must
be returned no later than June 16. |