Digital Equipment Corporation reports second quarter net income of $32 million.

MAYNARD, Mass.--(BUSINESS WIRE)--Jan. 16, 1997--Digital Equipment Corporation (NYSE:DEC) today reported net income of $31.9 million, or $0.15 per common share, for the second quarter, which ended December 28, 1996, compared with net income of $148.8 million, or $0.91 per common share, for the same period last year.

Total operating revenue for the quarter was $3.358 billion, compared with $3.951 billion for the comparable quarter a year ago. Revenue was up 15 percent from the first quarter of the 1997 fiscal year.

"I am satisfied with the progress the company demonstrated in the second quarter compared with our first quarter results," said DIGITAL Chairman Robert B. Palmer. "We needed to address a number of issues over the past few quarters to position the company for long-term growth. We are doing so.

"DIGITAL'S long-term goal is to generate revenue growth and profit levels which put us among the industry leaders," Palmer continued. "In the short-term, our objective is continuous improvement."

Product revenue was $1.844 billion compared to $2.347 billion in the second quarter of last year. However, product revenue was up 21 percent from the first quarter of fiscal 1997.

DIGITAL'S service revenue was $1.513 billion compared to $1.604 billion reported for the same period last year. Service revenue was up 9 percent on a sequential basis.

Over the past month, the company, in separate actions, lowered the price of its leading 64-bit Alpha microprocessors and its AlphaServer and AlphaStation line.

"This Alpha pricing and positioning, both on the systems side and the microprocessor side, will expand the market for the breakthrough performance and price/performance offered by the 64-bit Alpha platform," Palmer said.

Palmer said DIGITAL'S Personal Computer Business Unit generated a profit for the quarter, and met all of its operating objectives.

"The Personal Computer Business Unit has done an excellent job meeting its goals over the past quarter," Palmer said.

The Internet Software Business Unit introduced a host of products based on DIGITAL'S powerful AltaVista search engine technology including the AltaVista Directory '97, an intelligent and powerful out-of-the-box personal directory application for Windows NT servers and AltaVista Search My Computer Private eXtension (PX) software. The software extends the strength of the AltaVista Search public service on the WEB to private domains.

"Our Internet products are being very well received in the marketplace," Palmer said.

During the quarter, the company experienced further acceptance of its StrongARM RISC microprocessor with the announcement that five companies from around the globe have adopted the chip to power Internet/intranet appliances. In addition, DIGITAL announced that StrongARM will be supported by Microsoft's recently introduced Windows CE software platform and that Apple Computer has selected the StrongARM chip to drive its new Message Pad 2000.

"StrongARM is emerging as the choice of the industry's largest network appliance vendors and other consumer electronics products manufacturers because of its combination of industry-leading performance and low cost," Palmer said.

The company continues to make progress in improving overall gross margins, said Vincent J. Mullarkey, vice president and chief financial officer.

Gross margin for the quarter was 32.9 percent, compared with 32.6 percent for the same period in the prior year and 31.3 percent in the first quarter of the current fiscal year.

Product gross margin was 34.5 percent, compared with 32.5 percent in the second quarter a year ago and 31.1 percent in the first quarter of fiscal 1997. Service gross margin was 30.9 percent compared with 32.7 percent in the comparable period last year and 31.5 percent in the first quarter of fiscal 1997.

Total operating expenses for the quarter were $1.067 billion, down 6 percent from a year ago.

"The decrease reflects the effects of sound business controls and the continued implementation of our restructuring," Mullarkey said. The company ended the quarter with approximately 55,900 employees, down 1,100 from the prior quarter.

Mullarkey said continuing improvements in asset management resulted in the company ending the quarter with approximately $2.3 billion in cash and short-term investments, up more than $250 million from the first quarter.

Statements contained in this press release which are not historical facts are forward looking-statements as that term is defined in the Private Securities Litigation Reform Act of 1995. All forward looking statements are subject to risks and uncertainties and are discussed more fully in the company's Annual Report on Form 10-K and the company's other filings with the Securities and Exchange Commission.

Digital Equipment Corporation is a world leader in open client/server solutions from personal computing to integrated worldwide information systems. DIGITAL's scalable Alpha and Intel platforms, storage, networking, software and services, together with industry-focused solutions from business partners, help organizations compete and win in today's global marketplace.

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Note to Editors: DIGITAL, the DIGITAL logo, AlphaServer, AlphaStation, AltaVista are trademarks of Digital Equipment Corporation. Microsoft is a registered trademark and Windows NT and Windows CE are trademarks of Microsoft Corporation. Apple is a registered trademark of Apple Computer, Inc.

StrongArm is a trademark of Advanced RISC Machines Ltd.

Consolidated Statements of Operations (Unaudited)
(in thousands except per share data)

                                      Three-Month Period Ended

                                December 28, 1996    December 30, 1995

Product sales                      $ 1,844,280         $ 2,346,879
Service revenues                     1,513,467           1,604,498
Total operating revenues             3,357,747           3,951,377
Cost of product sales                1,208,235           1,583,282
Service expense                      1,045,788           1,079,753
Research and engineering
 expenses                              249,841            263,348
Selling, general and
 administrative expenses               817,408            871,735
Operating income                        36,475            153,259
Other (income)/expense, net (1)           (445)           (17,036)
Income before income taxes              36,920            170,295
Provision for income taxes               5,039             21,513
Net income                              31,881            148,782
Dividend on preferred stock              8,875              8,875
Net income applicable
 to common stock                    $   23,006         $  139,907
Net income applicable
 per common share (2)               $     0.15         $     0.91
Weighted average common
 shares outstanding                    156,230            154,281

                                     Six-Month Period Ended

                                December 28, 1996    December 30, 1995

Product sales                       $3,366,443         $4,165,538
Service revenues                     2,902,945          3,056,959
Total operating revenues             6,269,388          7,222,497
Cost of product sales                2,256,625          2,839,960
Service expense                      1,996,971          2,040,660
Research and engineering
 expenses                              507,485            519,780
Selling, general and
 administrative expenses             1,549,583          1,606,169
Operating income/(loss)                (41,276)           215,928
Other (income)/expense, net (1)        (16,617)           (11,144)
Income/(loss) before income
 taxes                                 (24,659)           227,072
Provision for income taxes               9,341             30,119
Net income/(loss)                      (34,000)           196,953
Dividends on preferred
 stock                                  17,750             17,750
Net income/(loss) applicable
 to common stock                   $   (51,750)        $  179,203
Net income/(loss) applicable
 per common share (2)              $     (0.33)        $     1.17

Weighted average common
 shares outstanding                    154,930            153,002

Note (1): In the second quarter of fiscal 1997, Other
(income)/expense, net includes approximately $27 million of interest
income, $22 million in interest expense and $5 million in net loss on
divestments.  In the second quarter of fiscal 1996, Other
(income)/expense, net includes approximately $21 million in interest
income, $26 million in interest expense and $22 million in net gains
on divestments.  In the first six months of fiscal 1997, Other
(income)/expense, net includes approximately $53 million in interest
income, $43 million in interest expense and $7 million in net gains
on divestments.  In the first six months of fiscal 1996, Other,
(income)/expense, net includes approximately $38 million in interest
income, $49 million in interest expense and $22 million in net gains
on divestments.

Note (2): Per common share amounts are calculated based on the
weighted average number of common shares and common share equivalents
outstanding during periods of net income, after deducting applicable
preferred stock dividends.  Per share amounts are calculated based
only on the weighted average number of shares outstanding during
periods of net loss, after deducting applicable preferred stock
dividends.

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Selected Balance Sheet Data (Unaudited) - Q2 FY97
(in thousands except per share and employee data)

                                         December 28, 1996

Cash, cash equivalents and short-term investments    $  2,293,825
Accounts receivable, net of allowances                  2,947,300
Inventories                                             1,520,745
Prepaid expenses, deferred income taxes and other
 current assets                                           334,888
Total current assets                                    7,096,758
Property, plant and equipment, net                      2,176,096
Other assets                                              372,084
Total assets                                            9,644,938
Bank loans and current portion of long-term debt (3)      271,290
Accounts payable                                          803,518
Accrued restructuring costs                               496,462
Total current liabilities                               4,096,961
Long-term debt (3)                                        749,514
Postretirement and other postemployment benefits        1,196,120
Total liabilities                                       6,042,595
Stockholders'equity                                  $  3,602,343
Book value per common share                          $      20.36
Non-U.S. revenues                                QTR $  2,299,255
                                                               68%
                                                 YTD $  4,199,870
                                                               67%
Employee population  (approximately)                       55,900

Note (3): During the second quarter of fiscal 1997, a $250 million
five year bond, due November 1997, was reclassified from long-term
debt to current portion of long term debt.

CONTACT: Investor Contact: Pat Spratt

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Media Contact: Dan Kaferle

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