By Nick Wingfield
The Wall Street Journal Interactive Edition
SAN FRANCISCO -(Dow Jones)- Are there second acts in the lives of
American high-tech companies?
Massachusetts legend Data General Corp. (DGN) certainly hopes so.
Shares of Data General recovered some lost ground Friday after the
company's warning of a possible shortfall in the 1998 fiscal year sent
the stock into a tailspin the day before.
The company's stock edged up 25 cents to close at $19.25 on the New
York Stock Exchange Friday. But that followed a punishing Thursday on
Wall Street, when it closed at $19, down $4.375, or 19%.
That same day, the Westboro-based provider of server and data-storage
hardware announced the highest fiscal-year revenue in its 29-year
history.
But the company warned that revenue growth from its Clariion line of
data-storage equipment would slow in the first quarter because of a
transition to so-called fiber channel technology.
For its fourth quarter ended Sept. 27, Data General reported net
income of $17 million, or 35 cents a share, compared with $9.9 million,
or 24 cents a share, a year earlier.
That trailed the mean estimate of analysts surveyed by First Call of
37 cents a share. Revenue, meanwhile, rose to $404.1 million from $336.2
million.
Analysts said the warning about Clariion was particularly
disappointing because Data General's storage business was driving much
of the company's revenue growth.
In the early 1980s, Data General was one of the nation's largest
makers of minicomputers for corporate and industrial use. It breached
the $1 billion mark in annual sales in 1984.
Data General's place in tech history was assured by Tracy Kidder's
Pulitzer Prize-winning "The Soul of a New Machine," which described the
late-night quests of a Data General tech team to develop a new
minicomputer in record time despite having to "borrow" resources and
avoid the scrutiny of doubtful managers.
Kidder's book has become a totem both for managers searching for
better ways to build teams and motivate brilliant but bored employees
and for high-tech guerrillas struggling to make a project bloom. Still,
Data General, founded in 1968 by defectors from Digital Equipment Corp.
(DEC), was famous for its scrappy product-development smarts and gung-ho
sales tactics even before Kidder immortalized the company.
But Data General was caught unawares by the rise of the personal
computer, which swiftly eclipsed the larger machines on which it had
made its fortune.
In 1987, the company tried to salvage itself by moving into the
booming workstation market with a powerful machine based on Unix
software and advanced microprocessors from Motorola Inc. (MOT).
The transition wasn't easy: Data General's stock slid from north of
$38 that year to $4.50 in early 1991, shortly after company co-founder
Edson D. deCastro was forced out by the board.
Since then, the company has struggled to make that transition
complete, converting its servers to microprocessors from Intel Corp.
(INTC) and phasing out the Motorola chips.
"This is a question of renaissance and rebirth," said Michael Geran,
an analyst at Donaldson Lufkin & Jenrette Securities Corp.'s Pershing
unit. "Now the question is how long it's going to take to start the
engine again. It's stalled."
As for its server business, Geran said machines based on Windows NT
were selling well, but a slowdown in sales of its Unix-based computers
offset overall growth in Data General's server business. After the
warning about Clariion, Geran revised his fiscal 1998 earnings
projections from $1.50 a share to $1.25 a share.
Not everyone felt Data General deserved the flogging it received on
Wall Street, though.
"I think it was definitely an overreaction," said Jim Corridore, an
analyst at S&P Equity Group. "I felt they were being unjustly punished."
Corridore said he is still optimistic about Data General's overall
revenue growth potential in 1998. He said the company is expecting only
10% less demand for its fiber-channel Clariion product in the first
quarter, and that that product accounts for about 20% of the company's
sales.
Corridore lowered his estimate of the company's fiscal 1998 earnings
down to $1.45 a share from $1.60.
Copyright (c) 1997 Dow Jones & Company, Inc. |
