With its repeated entries and sudden departures from the personal-computer business over the years, Digital Equipment Corp. has never been considered a serious contender. It didn't help that the minicomputer maker's founder, Kenneth H. Olsen, was fond of denigrating the upstart PC. "Everyone will have one--tucked away in the closet," he confidently predicted.
Now, it turns out, DEC is really a closet PC company. In just the past two months, it has revived a me-too product line with well-received IBM-compatible desktop and notebook PCs. A new retail sales push includes savvy consumer-product marketing ideas, such as giving major retailers exclusives on certain models. The company made a splash with new models at Comdex, the industry's extravaganza in early November, and a new crew of seasoned PC talent is busy hatching more plans to enlarge DEC's PC business. Even rivals no longer doubt DEC's PC ambitions. "I hate to say it," says Jim McDonnell, a Hewlett-Packard Co. marketing manager, "but DEC smells like a PC company."
MINI RELIEF. It certainly looks like a contender. Industry analysts expect DEC to double PC shipments, to 1 million machines this year, vaulting the company to No.12 in the world market from a lowly No.26 just two years ago (table). The Personal Computer Business Unit should contribute $2 billion, or 24% of the company's product sales, for the fiscal year ending next June 30--up from $1.5 billion last year.
In fact, it could be the PC that pulls DEC out of its five-year funk. PC-revenue gains are already helping to offset the nearly $6 billion in red ink over the last four years from tanking mini sales. But more important, the successful PC unit is making DEC rethink how it does business in general and its approach to such concepts as client-server computing in particular. "The success of the PC business has deeply affected the way the company is thinking about the systems business," says Wes Melling of Stamford (Conn.) researcher Gartner Group Inc. For example, DEC is rewriting a version of the pioneering disk-sharing software it originally developed for its minis to run on PC-based servers. The software is designed to be easy to install and will be sold in PC stores.
The PC turnaround began two years ago with the arrival of Enrico Pesatori, a former Zenith Data Systems executive and longtime veteran of Italian PC giant Olivetti. Pesatori dramatically expanded the use of resellers, hired new managers, and redirected development efforts. Last April, he was rewarded with a promotion to vice-president of the Systems Business Unit, responsible for all computers. He handed over the PC operation to Bernhard Auer, a former executive with Compaq Europe.
Auer has already presided over the introduction of striking new products, such as the ultrathin HiNote notebook--selected as the best new product at Comdex by researcher BIS Strategic Decisions. Next up is a new computer slated for introduction on Dec. 5 that runs client-server networks. While the main target for the new Prioris line will be servers made by Compaq Computer, IBM, and Dell Computer, Auer concedes that it will also compete against DEC's cherished minicomputers.
Such freedom to pursue its markets--even if it means mashing other DEC toes--may be critical for the continued success of the PC unit. Auer, a 53-year-old native of southern Germany who describes himself as a "determined Bavarian," wants the unit to swing for attainable goals rather than grand slams. When he came in, the official objective was to take fifth place in market share next year. That would have required DEC to sell 4 million PCs, a near-impossible dream. Now, Auer is focusing on a handful of fast-growth segments. "I need a few number ones in the short term," he says. Because notebooks and servers carry higher margins than desktop machines, hits in these markets should help Auer continue to maintain net margins similar to Dell's 4%, he says.
Will he succeed? A lot depends on the new products. Thus far, analysts say DEC's gains have come largely from selling PCs to its minicomputer customers. Now, the going gets tougher as DEC expands to new customers among small businesses and consumers. The new HiNote, for example, will have to fight for shelf space against such names as Compaq, Toshiba, Apple, and a revitalized IBM. That's going to be an uphill battle. PC Warehouse, an 87-store chain based in Rochelle Park, N.J., recently passed on DEC because it lacks separate lines for consumers and businesses. "The manufacturers we pick up have to have retail and corporate products," says Reza Shafiei, director of marketing at PC Warehouse. "Timing is very important; now, DEC is a little late."
To overcome the late start, Auer is counting on a team of veteran PC managers recruited from Compaq, Zenith, IBM, and Tandy. And just like other PC companies, he has aligned the PC operation into desktop, mobile, and retail "brand" units that mimic Procter & Gamble Co.'s consumer-marketing machine. Indeed, analysts expect a consumer-market push to emerge within 12 months. "They've been successful in pulling together an organization with people and disciplines from all areas of the business," says Randal A. Giusto, director of mobile computing at researcher BIS.
If any group epitomizes the new approach, it's the team that delivered the HiNote. Led by Vice-President Winnie Briney, a former IBM PC marketing manager, the group created a machine that is 1 inch thick and sports a full-size screen and keyboard. HiNote sales could hit 300,000 to 400,000 units next year--about five times the annual shipments for DEC's current notebook offerings, says researcher WorkGroup Technologies Inc.
HOUSEHOLD NAME? Opening new PC markets will be critical if DEC hopes to crack the top 10 next year. PC juggernaut Compaq has an ambitious goal of its own: to nearly double market share to 20% in 1995. Analysts figure it can only do that by taking business from second-tier players. To avoid being rolled over, DEC has to jump-start its retail push. Leading the effort is former Compaq marketing executive Skip Gladfelter, now a DEC vice-president. His first target is the millions of consumers and small-business owners that he hopes are shopping in mass-merchandise discount chains. He has signed CompUSA and Sam's Club and expects to have four major chains carrying DEC products in 1995.
That should give DEC a way to go after another hot market. "By next Christmas, we want to have a true consumer product," says Gladfelter. Now, what would company founder Olsen say about a DEC PC under every Christmas tree?