For the next few years, DEC maintained its position as one of the primary manufacturers of computer equipment. But in the 1990s, things began to go downhill again. A recession had hit the country and the computer industry was shifting its emphasis to software and services. Sales were moving from institutions to individuals and from proprietary mini and mainframe computers to PCs, networks, and open systems. DEC was on the wrong side of almost all of those trends and was simply not responding well to the changes.
By 1992, it was clear that DEC was in trouble. The fiscal year ended with DEC carrying a $2.8 billion debt following losses of $617 million in 1991. The company's operating expenses were eating up 44 percent of its revenues and company management agreed that DEC had to downsize. But Ken Olsen could not bring himself to let thousands of workers go and, eventually, the board of directors asked Olsen to step down. After 35 years, the man who had forever epitomized the heart and soul of DEC was gone. But he had lasted far longer than most of the entrepreneurs in the computer industry and had carried his company through many highs and lows.
After Olsen's departure, the new management under CEO Robert Palmer began cutting expenses. Factories were shut down and over 30,000 workers were let go. By mid-1993 the downward spiral was slowed and, although the company was still in the red, it appeared to be recovering. Internally the reorganization brought confusion, and even though DEC brought in new managers who knew the high-volume, low-margin market, they were simply unable to shift to high commodity products quickly enough. On April 15, 1994, the company and the world were stunned to learn that DEC had recorded a $183 million dollar third-quarter loss. At DEC, the day became known as Black Friday.
The job of turning the company around was given to Enrico Pesatori, a DEC vice-president who had come from Zenith Data Systems in February 1993. Starting in July of 1994, Pesatori put the company on a new path that included shifting sales from DEC's sales force to hundreds of resellers, scrapping the confusing and time-consuming matrix management, dropping unprofitable ventures, and reorganizing the company into a series of product-oriented mini-DECs, each responsible for its own success. Additional jobs were cut, and the company that once employed 126,000 soon consisted of about 63,000, a third of whom were in Europe.
The company refocused on its strengths, primarily networking and video servers, and moved into the high-volume, low-margin commercial markets that were necessary to ensure continued revenues. In 1994 DEC came out with a line of desktop computers called the Celebris, and in 1995 introduced its new ultra small laptop product called the HiNote. This time, the company had management in place that understood how to sell to this market, and in May 1995, DEC posted its first back-to-back profitable quarters in four years.
In addition, DEC has produced its own super-fast microprocessor called the Alpha. DEC is using the Intel chip in PCs and large servers being built for the commercial market, while using its much faster Alpha chip in DEC products for its existent customers. DEC has also struck a deal with Microsoft's Windows NT group to use the Alpha chip in its operating system for network servers. DEC's video server computers are also being used by cable companies to insert local advertising digitally onto their networks. This switch to digital ads is expected to open an extremely lucrative market for specialized servers. In 1996, DEC announced it would discontinue marketing residential PCs and concentrate on the business PC market.
Digital Equipment Corporation is one of the few original manufacturers to have survived the early years in the computer industry. The company has suffered the ups and downs that have plagued this high-growth industry to become one of the most recognizable names in computer manufacturing. In 1998, Digital Equipment announced that it was being sold to the Compaq Computer Corporation for $9.6 billion, thus ending its long, strange economic journey of ebbs, flows and surges.