DEC's Palmer girds for battle Digital's chairman on the hot seat as earnings plunge By W. David Gardner, EE, EE Times Maynard, Mass. -- A month ago, Digital Equipment Corp.'s Robert B. Palmer was among the most visible men in the computer industry, propelled into the spotlight by Digital's stunning patent suit against Intel Corp. Today, they're taking to the barricades at Digital headquarters here as forces on Wall Street and Main Street--and, of course, at Intel--circle the embattled chairman and chief executive. "Mr. Palmer has been associated with the current state of affairs at Digital," said Wall Street shareholder activist Herbert Denton, who noted that the current state of affairs appears dismal. The company has lost more than $5 billion in recent years, and its stock has plunged from $199 a share to the mid-30s. Denton, president of Providence Capital Inc. (New York), will preside over a meeting representing more than 35 percent of Digital shareholders on June 18. Denton said the meeting is for "informational purposes." But many of his past informational meetings have led to fundamental structural changes in companies whose stocks have performed poorly. The meeting, closed to the press and the public, will cover several topics but will zero in on Digital's lawsuit against Intel. Two intellectual-property experts will discuss the suit and Intel's countersuit against Digital. And the litigation seems destined to escalate. Digital has indicated it could file antitrust charges against Intel, and intellectual-property experts expect Intel to take additional legal action against Digital. Palmer has said that he will not attend Denton's meeting. But another gathering--Digital's annual meeting, in November--could command his attention. The Communications Workers of America labor union and the Investor Rights Association of America have filed separate shareholder proposals that, if approved, could lead to Palmer's ouster. "We feel Digital should be merged or sold," said William Steiner, founder of the Investor Rights Association of America (Great Neck, N.Y.). The group has filed three resolutions for consideration at the November annual meeting: first, to hire an investment banker to merge or sell the company; second, to remove so-called poison-pill structures at Digital that make it difficult to remove top management, and third, to facilitate the election of a new board of directors. The Communications Workers of America (CWA) , which owns some 48,000 shares of Digital stock, asks in a resolution for the annual meeting that Palmer's position as chairman and chief executive be divided into two posts. A CWA spokesman noted that more than half of Digital's employees--more than 60,000 people--have been fired in recent years. He said that more than 35 percent of Digital's European employees are union members and that the CWA had been consulting with its "counterpart unions in Europe" about the situation. A German employee has filed a proposal requiring Digital to include an employee on its board. Palmer's future rides in large part on the sales performance of his company's flagship 64-bit Alpha processor. Denton said that the June 18 meeting will feature a presentation on the Alpha by an independent processor architect who designed one of IBM Corp.'s most successful machines while he was employed at IBM. Although sales of the Alpha dropped 2 percent in the last reported quarter, Alpha's fans consider the dip an aberration. In fact, sales volume was up 2 percent after a sharp price reduction . "I remain confident that the Alpha will be successful," said Terry Shannon of Ashland, Mass., publisher of the newsletter "Shannon Knows DEC." An upcoming more robust version of Windows NT could be crucial to that success. Shannon that said Windows NT release 5.0--the so-called Cairo release, due out next year--is a "bet your company" event for Palmer. Indeed, ever since Microsoft chairman Bill Gates pledged to support the Alpha in 1992, Digital has been gambling that NT-powered Alphas would provide the major forward thrust for the company. The good news for Digital, Shannon said, is that "the Alpha will be the only 64-bit computer that NT will be supported on [initially]." The problem is that Digital's NT lead on the 64-bit Alpha could shorten significantly when Intel and Hewlett-Packard Co. bring out their 64-bit Merced processor. The later Windows NT 5.0 is delivered to market, the more tenuous Digital's 64-bit lead becomes. Digital's NT-centered relationship with Microsoft has the overtones of a detective thriller. Digital was hardly pleased when Microsoft lured away David Cutler, a key developer of Digital's pathfinding VMS large-systems operating system, who went on to mastermind NT. Hawks among Digital's top management ranks talked lawsuits; Palmer instead hammered out a peaceful pact with Microsoft. He likewise crafted an arrangement with Oracle Corp. that saw Digital largely vacate its database products and turn over database development for Digital's equipment to Oracle. Palmer, an engineer from Digital's semiconductor unit, has strong emotional ties to the Alpha, having initially proposed the device to Digital's directors in 1988. But in spite of the Alpha's eye-popping hardware specifications, its application software--or lack thereof--has been criticized for years. Digital believes it has solved that problem with its FX!32 binary-code translator. "This is excellent stuff," said Shannon. "Even if you can only get 60 percent of native performance [with the FX!32 on an Alpha], you're still ahead of Intel's top machines, because the Alpha is twice as fast." So why hasn't the hardware sold well? Shannon cited the perennial user complaint about Digital: poor marketing. That translates into a poor "ease of doing business" with the company. Confusion about market direction has suffused the company for years. Long before Palmer took over, realignments and reorganizations of Digital's sales operation were virtually annual affairs. Palmer, too, has repeatedly realigned Digital's sales efforts, frequently forcing out its marketing executives. But a spokesman said the company has progressed from the point five years ago when it was "hemorrhaging money." He said it communicates with its shareholders and thus sees no need to attend the Denton meeting. One thing certainly is different. Texan Palmer, with his signature double-breasted suits and Porsche, is the opposite of Ken Olsen, the CEO he replaced--a native New Englander who drove a Ford Pinto because it saved on gas. Palmer now is close to where Olsen was five years ago, with restless investors and anxious employees. But publicly, he seems confident that he won't have to trade down that Porsche. (Next article.) (c) 1997 CMP Media, Inc [This article comes from EE Times in a joint cooperative effort with the Motley Fool. For more articles like it, please look at Fool's Gold every weekend or simply go to the Fool's Gold Mine and page through our back issues, which all have clever and cool EE Times articles in them.]

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