DEC suspends Alpha second source try, cites foundry wariness on fab expense

Electronic News, Oct 5, 1992 by Craig Stedman

MAYNARD, MASS.--Digital Equipment Corp. suspended its search for a second Alpha source when it could not find a foundry willing to make required fab investments before Alpha-based systems hit the market, it was learned last week.

DEC wanted at least one alternative foundry by yearend, but Robert B. Palmer, the company's new president and CEO, said last week he now expects to wait until Alpha has a proven track record at the system level. While the manufacturing process used for the RISC microprocessor is viewed by industry observers as relatively complex, Mr. Palmer attributed the wariness of merchant vendors on business problems that have plagued the markets for both the Sparc and MIPS architectures.

"Semiconductor manufacturers are kind of holding back," he said at a briefing here as he formally took control of DEC. "They didn't make a lot of money on picking up licenses of various other semiconductor architectures in the first round of RISC processors, so they're saying, 'Let's wait until we see how the systems really perform in the marketplace and it won't be too late to take a license with Digital later."

Mr. Palmer added he is "open to that" attitude and remains optimistic that DEC will eventually find willing licensees. "We think when they see the systems and the performance of the systems that we'll be more successful in finding a partner," he said.

DEC is thought to have contacted most of the major semiconductor makers over the second source issue. Cypress Semiconductor, Fujitsu and LSI Logic--all currently Sparc licensees, with LSI also a MIPS backer--are among the companies which have confirmed talking with DEC.

Going back to last fall, when DEC first began detailing Alpha, executives have said multiple sources both here and abroad are critical to the program, which itself is extremely important to DEC's future. The second source effort is motivated partially by positioning concerns, since DEC wants other system vendors to adopt its architecture. The company also wants both development assistance and added capacity for producing lower-cost, higher-volume versions.

Mr. Palmer, in his first public comments since being named in mid-July to replace DEC founder Kenneth H. Olsen, also indicated some of the changes he has in mind. The firm's engineering groups are to be consolidated under a single vice president expected to be appointed from within DEC in the next two weeks. The new executive will be charged with eliminating overlaps and redundancies in hardware R&D and implementing a new modular platform strategy, Mr. Palmer said.

That's both a cost-cutting measure and an attempt to foster "a cultural change" in DEC's R&D units, he added. Mr. Palmer noted DEC hasn't had an engineering vice presient "supported by top management with clear lines of responsibility for several years, and the results show it."

Senior management changes are "unavoidable" and will include the hiring of new executives from outside the company, Mr. Palmer said. These hires will most likely come in sales and marketing, which are perceived as DEC's weak spots. A commission plan will be implemented in January for DEC's sales force, which until now has been almost exclusively salaried.

Mr. Palmer is also looking to make major changes in DEC's entire supply chain, from R&D to supplier management and on to manufacturing and distribution. That is expected to play a major role in a stated goal of eliminating $1 billion in annual costs and assets.

Sales or closings of additional facilities aren't being ruled out, and the pace of workforce cuts "will increase significantly," Mr. Palmer said, adding that layoffs will likely continue "for the next couple years." He did not quibble with reports that a total of 15,000 to 25,000 jobs may be cut.

The executive would not project a return to profitability, but he agreed with analysts that neither income nor an improvement in DEC's low productivity per employee will appear overnight. "It took a long time to get ourselves in this position, and it's going to take time to turn it around," he said.

Mr. Palmer did not mention Mr. Olsen during his prepared speech, but in response to a question described his predecessor as "a legend in the computer industry, and rightly so." He noted, however, that he has "a different management style and environment" planned for DEC.

"What we need is a little bit of leadership at my level to make sure the entrepreneurs in the company know what our objectives are," Mr. Palmer said. "The trick is we haven't been very crisp about deciding (things). The debates have gone on forever, and the length of the product cycles no longer allows that."