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There is no doubt that Intel is a very profitable company right now: financial results are solid, at first sight, and the shareholders are making a lot of money thanks to huge dividends. However this is just the tip of the iceberg: inside Intel there is a lot of activity.

The Mobile market (Smartphone) is already lost, the Enterprise market is under siege by ARM and IBM (Power), NVIDIA (HPC sector), and in x86 field AMD is coming back with Zen. Intel is threatened by competition from all sides.

This situation remind to DEC falling, about 20 years ago, and now I will explain why (To write this article, I'll use even a document written in 1994 - Digital Equipment Corporation: R.I.P. or Future Lean and Mean Competitor?, by Greg Scott).



DEC, the king of workstation in 1970s and 1980s

During ‘70 and ‘80 DEC was the king of workstations (Minicomputers!), a product considered useless by IBM managers in its early days (Until ‘70, the Mainframe were the real computers, according to the specialists at IBM). However, thanks to an aggressive price, minicomputers gained market share, especially in Universities, private laboratories and so on: “In 1957, Ken Olsen started Digital Equipment Corporation as a mail-order parts business. Digital Equipment delevered its first computer (the transistorized PDP-1) in 1959 and produced the first minicomputer in 1965. At that time, the installed base of mainframe computers was valued at about $6 billion. IBM had a 65 percent share of U.S. computer market. Sperry Rand has 12 percent, followed by Control Data with 5 percent, and the six competitors with 3 to 4 percent each. (Philco had captured 0.7 percent share of the U.S. installed base of mainframe computers by 1965.) By 1967, there were eight major mainframe computer and peripheral equipment firms in the United States: IBM, Burroughs, Sperry Rand, NCR, Control Data, Honeywell, GE, and RCA. There were approximately 50,000 mainframe computers in use in the United States in 1969.
Customers quickly found uses for minicomputer, which was featured as Times magazine’s “Man of the year” in 1982. During 1970s, sales of mainframe computers grew about 12 percent per year; minicomputer sales grew by 33 percent during the same period”. (Managing Maturing Business, by Kathryn Rudie Harrigan, Pag. 112)

Also, we can read: “DEC offered a unique new way to do computing: Instead of massive, multi-million dollar mainframes behind a glass wall, why not put computing power in front of people where they could use it?  Ken Olsen and this vision led DEC to an unprecedented 30+ years of phenomenal growth.  For an order of magnitude less than the cost of a typical mainframe, DEC could offer minicomputers and networks to match or exceed nearly all the mainframe’s capabilities. DEC pioneered commercial computer networks, distributed processing, client/server applications, clustering technology, highly available systems, and a whole host of other information technology innovations”. (Digital Equipment Corporation: R.I.P. or Future Lean and Mean Competitor?, by Greg Scott)

We can say that Ken Olsen was a visionary, but – as is so often the case – when we grow old, we lost imagination. IBM fooled DEC at his own game, commercializing the Personal Computer (Equipped with the cheap x86 Intel processors). As IBM managers 20 years earlier, Olsen made the same thinking: “There is no reason for any individual to have a computer at his home”. According to IBM, there was no reason for any company to have a computer in his office! Intel did a similar error too, refusing to product the SoC of the first iPhone due to low margins. Also, no one in Intel believed in Apple vision.

But let's not jump the gun, here, and let's go back a few years. Thanks to Olsen idea, DEC became a huge and important company. And when you become important, you become arrogant too: “For a brief period, DEC ruled the computing community.  Analysts at the time stumbled all over themselves predicting a rosy future ahead; some predicted 20 percent compounded growth for the next 5 years. Jack Shields, then head of DEC sales and service, printed up party invitations for July 10,  2007, the predicted date when DEC would pass IBM in revenues. Those were heady times.  We offered products no other vendors could build, we knew more about software development and project management than anyone.  We were  “right”, everyone else was “wrong”.  We were smarter, more healthy, and better looking than anyone else, and we were not shy about telling everyone within earshot.  In other words, we became too arrogant for our own good” (Digital Equipment Corporation: R.I.P. or Future Lean and Mean Competitor?, by Greg Scott).

So DEC managers believed, in 1980s, to be able to battle with IBM on equal terms. They tried to gain big money in the Enterprise market: “Sometime in 1985, the senior managers at DEC decided to abandon their traditional market of engineering, manufacturing, and technical customers in favor of the commercial data center. The technical market was messy, difficult to support, and filled with third party devices that interfered with the purity of DEC’s computing environment. The commercial data center market, the traditional IBM stronghold, was flush with money and people eager to spend it.  But this new market meant a fundamental shift in  DEC’s focus and would eventually prove disastrous” (Digital Equipment Corporation: R.I.P. or Future Lean and Mean Competitor?, by Greg Scott). Intel tried to do the same in the Mobile (Smartphone) market, too.

The main fail of DEC managers was that they stopped to innovate. They thought their rivals were unable to reach performances of their own products. So they became avid: “Founded in the early 1980s, Sun marketed a line of UNIX based workstations. As DEC closed its architecture, tightened its licensing policies, and alienated its partners and customers, Sun seized its opportunity.  As the late 80s unfolded,  “Open Systems” became a popular buzzword across the industry.  Sun brilliantly took advantage of DEC’s new policies by branding DEC as a closed, proprietary bloodsucker. Sun’s sales took off, at the expense of DEC.  In late 1988, IBM introduced its AS/400 systems aft er more than a year of rumors.  The AS/400 went on to generate roughly $14 billion in a nnual revenue for IBM -- more than  all of DEC’s revenue, company wide.  This stopped DEC’s inroads into IBM’s midrange market share cold” (Digital Equipment Corporation: R.I.P. or Future Lean and Mean Competitor?, by Greg Scott).

DEC, engaged in attacking Enteprise market, was surprised by SUN and IBM in its own field! Also, SUN strategy was similar to ARM's today strategy!

Despite that situation, 1987 and 1988 were the most profitable DEC years. Why? Due to the platform. People had to buy DEC computers to work with most important software (Today people has to buy x86 machines), but the times were changing: “During all this, DEC saw its most profitable years ever in 1987 and 1988 as it replaced its entire VAX line with updated and faster models.  Profits in 1987 were $1.1 billion, $1.3  billion in 1988.  Year over year decline began in 1 989 and continued through the early 1990s.  Results improved for a few quarters but the general downward trend is continuing as of mid 1994” (Digital Equipment Corporation: R.I.P. or Future Lean and Mean Competitor?, by Greg Scott).
Thanks to introduction of IBM PCs, people can buy a good computer for a very good price.

However DEC lived many years, despite this crisis, thanks to the money collected during 1980s: “DEC has had only one profitable quarter since 1991.  This occurred in Q4, FY 1993.  According to statements from DEC senior managers, the U.S. has not been profitable since 1987. 15 In the 1980s, DEC was essentially debt free and boasted of a AAA bond rating.  At the end of Q3, 1994, Standard and Poors downgraded DEC’ s senior debt again to BBB and put the ratings on credit watch with negative implications.  Moodys also put the debt under review for possible downgrade. In March, the company tried to raise $500 million with a preferred-stock issue, but it could find buyers for only $400 million. The only reason DEC is still alive is its strong balance sheet from the 1980s.  But many of those assets are long gone.  The statistics are staggering:  From the end of FY 1990 through the end of Q3 FY 1994, DEC lost roughly  $4 billion. Even with these massive losses, assets still outweigh liabilities by roughly $5 billion. The company took a $1.5 billion charge for restructuring reserves in 1992, $1.1 billion in  1991, and $550 million in 1990.  At the end of Q3 1994, only $276 million of this restructuring reserve is left. Perhaps even more devastating than the financial statistics is the effect on people, morale,  and self-worth.  The first layoffs started in manufacturing in 1990 as DEC began to close plants” (Digital Equipment Corporation: R.I.P. or Future Lean and Mean Competitor?, by Greg Scott).

Today Intel is in a similar situation: cash flow is shrinking, layoffs are huge, long-term debit is growing, FABs are closing, rivals have faster and cheaper products, etc.

Lastly, during these years, working in DEC became very hard: “As week after week after week went by, each week brought a new rumor of yet another  layoff round as managers would sneak away for secret, offsite meetings.  Life inside Digital Equipment Corporation became very unpleasant during 1992 and 1993 as the fear and paranoia mounted”(Digital Equipment Corporation: R.I.P. or Future Lean and Mean Competitor?, by Greg Scott) . This reminds me to this rumor.

I have, like, a million things I could write right now about Intel and DEC, but I think it’s better to stop here. If you want to go deeper into the matter, here it is some links:

Digital Equipment Corporation: R.I.P. or Future Lean and Mean Competitor?, by Greg Scott

Digital Equipment Corporation: nineteen fifty-seven to the present

Digital Equipment Corporation, by Alan R.Earls

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Gian Maria Forni
Autore: Gian Maria Forni
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Esperto di mercati e CPU
Sebbene sia laureato in Lettere e Filosofia, indirizzo Storia Contemporanea, e scriva per quotidiani e riviste di tale settore, ha sempre avuto la passione per l'informatica ed ha collaborato quale moderatore in importanti forum del settore
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