JUST a few years ago when it was haemorrhaging cash, Digital Equipment - the second largest computer group in the world after IBM - was being written off by many in the industry as another high tech disaster.
Following its early success with proprietary Vax minicomputers, Digital's failure to adapt to the new world of "open systems", and PC oriented computing in the late 1980s brought it to the brink of bankruptcy.
But under Robert Palmer, who, became president and chief executive of the Massachusetts based group in October 1992 and was elected chairman last May, Digital has staged a remarkable turnaround.
"When the paradigm shifts like it clearly did from vertically integrated computer companies to open systems and PC economics, the longer you postpone recognising and dealing with that reality, the more painful it is," says Palmer, an accomplished electronics engineer in his own right.
"It was very painful for Digital but we have got that behind us now," he says. In its 1995 fiscal year ending July 1st, Digital posted its first profit since 1990, turning a $519 million loss the previous year into a $122 million profit. Revenues grew by $390 million to $13.8 billion while employee numbers dropped to 61,500 less than half the peak level. Last week it announced that quarterly profits were up 67 per cent to 124 million - the best result for the period in six years.
This turnaround was fuelled by demand for its high performance Alpha systems. These have generated more than $7 billion in revenue since their launch in 1992, and have become established as the leading 64 bit architecture.
Before joining Digital in 1985 and becoming vice president of its semiconductor operations the following year, Palmer, a Texan with a degree in maths and a post graduate masters in physics, had co founded the pioneering semiconductor group Mostek in 1969.
Over the past few years, he says, the computer industry has gone through a difficult transition, from vertically integrated companies that essentially designed all elements of the computing solution internally, to a disaggregated environment typified by horizontal competitors.
One company provides excellence across all the segments, although some companies have competencies in several of them," he told analysts last autumn.
Most companies recognise that, the vertically integrated model is "not the most efficient for a successful systems company.
"This trend will continue because it offers customers more choices, more flexibility and the opportunity for increased efficiencies in their operations." Nevertheless, Palmer acknowledges an enormous increase in complexity. "Many enterprises today are trying very hard to do business anywhere, any time, using an interconnected workforce deployed throughout the world.
To realise the benefits of "inter networked" commerce, he argues companies have a greater need than ever before to integrate or buy an integrated system that will connect users to other users within the enterprise, connect all users to vital data and, information and connect to suppliers, partners and customers.
For many organisations: client/server computing is the first concrete step for moving towards this kind of connectivity.
"But consider an example of, how client/server really plays out today," he says. "You've got 30 years of data on a mainframe or minicomputer, on MVS or VMS, in the glass house ... and you are trying to implement SAP R/3 throughout the organisation, but it is available only on Unix ... and nearly every department has a Windows based desktop ... and you've got three different wide area networks linking dozens of LANs [local area networks].
"This represents a typical large customer set up in today's real world. Variations on this theme are seen in large, mid sized and small businesses. In each case, the problem is the same computing environments that don't communicate effectively - or maybe not at all. We call this the client/server chasm, or the connectivity chasm.
"What customers want is a `black box', metaphorically speaking, that allows them to integrate all of the enterprise resources; makes all of those resources available to any desktop as desktop objects in the user's preferred graphical interface; and makes the whole implementation robust, dynamic, flexible, transparent and secure while at the same time protecting existing IT investments.
Besides internal connectivity, customers also want and expect "to be able to connect outside their enterprises, to suppliers prospects, their customers and so on with the same flexibility, transparency and security".
This all represents quite a challenge for the information technology industry. Digital has a three pronged strategy to address it. Firstly, it will choose four market segments in which to compete components, system platforms, connectivity software and client/server services.
Secondly, it will focus Digital's systems integration capability on large customers in targeted industries, so as to address the increasing complexity inherent in a segmented marketplace.
Thirdly, and most crucially, resources will be committed to solving the "black box" connectivity problem. By the end of the decade Digital estimates that 95 per cent of its customers will be using three systems - Unix. Windows NT and proprietary systems as they integrate their businesses.
Palmer sees Digital's much heralded alliance with Microsoft covering Windows NT, together with its Alpha technology, as being crucial to this strategy. He firmly rejects suggestions from some market analysts that Alpha is an expensive diversion.
"Alpha is a key strategic investment area for Digital," he, says. It has given the group a technological lead in the increasingly competitive world of high performance computing, and "a truly competitive differentiation - the ability to complement our Intel platform offerings, enabling us to offer customers an unequalled line of scaleable systems with Intel or Alpha processors, from notebooks to clustered, SMP mainframe sized servers.
"Alpha allows us to be competitive at the high end and in the mid range, and in a way that significantly differentiates us from our competitors. We have paid for EV5 [the Alpha manufacturing facility which cost $425 million, whereas most competitors have yet to provide their 64 bit systems."
Palmer sees the move to 64-bit computing as inevitable. "High performance computing is a requirement in a growing array of business applications, from interactive video servers to systems for technical computing and simulations," he says.
The demand for 64 bit computing power is being driven by power hungry applications such as multimedia, simulation and modelling, data warehouse and online transaction processing applications, Internet and interactive video servers.
"It is not just that we are seeing traditional business operations being done faster and more efficiently, although we are. We are also seeing the possibility of entirely new capabilities, like cost effective video on demand and cellular fraud detection - possibilities enabled by Alpha technology."
. Computer Associates International and Digital agreed on Wednesday to a broad strategic pact covering joint software development and customer service activities. Computer Associates will acquire several Digital systems management software products (these handle various behind the scenes housekeeping tasks needed to manage large corporate computer systems) and incorporate them into its own products. Digital will become Computer Associates' prime supplier of support services and systems integration.