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Technology Stocks : Data General Corp. "dgn" -- Ignore unavailable to you. Want to Upgrade?

To: DJBEINO who wrote (289)	5/17/1999 12:21:00 PM
From: Spartex	Read Replies (4) \| Respond to of 354

BOSTON CAPITAL Data General's future remains cloudy Firm has good products and is a survivor, but takeover talk persists By Steven Syre and Charles Stein, Globe Staff, 05/14/99 e had heard it all before. Data General Corp. stock began to bounce off the walls on Monday, moving up on sharply higher volume. The buzz: Shares of the Westborough-based company were moving on takeover talk. This has happened so many times in the last year or two that it's hopeless to try to keep count. Rumors of some big company buying Data General have always led nowhere. Trading has calmed down this week, with only modest price gains, to 12 11/16 on yesterday's close. Two questions: Why do they keep popping up? And does their persistence suggest that one day the whispers will finally come true? Data General illustrates themes woven deep into today's competition among technology businesses: how hard it is for computer hardware companies to reinvent themselves, the extraordinary amount of stock market capital that flows to industry leaders at the expense of second-tier competitors, and the critical importance of distribution to any computer-related company. Those issues are all behind the talk about Data General, one day rumored to be purchased by a competitor like EMC Corp. and another day thought to be a target of a big computer hardware seller like Dell Computer Corp. Data General declined to discuss its strategy with us, citing a media conference it scheduled for next week to discuss new initiatives. Analysts say there is nothing at all wrong with Data General's products, but the company remains susceptible to twists and turns in the markets for its products and its stock. ''They're fragile; that's the problem,'' said a technology analyst who asked not to be identified. The fact that Data General continues to exist at all is a kind of tribute. Practically all Data General's competitors from the long-gone days when its minicomputers were hot are now history: Digital Equipment Corp., Prime Computer, Apollo Computer, and others. Add Wang Laboratories Inc. to the list soon. ''They're a company that's left over from the last generation,'' said Carl Howe, a research director at Forrester Research in Boston. Data General hasn't gone away, but from a shareholder's point of view it hasn't gone anywhere. The company reorganized its business to sell computer-network servers and data-storage hardware years ago, and for a time seemed to be climbing out of a deep hole. Data General stock advanced into the 30s in 1997, but quickly retreated; it now trades below its prices of a decade ago and far lower than in its 1980s heyday. Computer-network servers account for more than 40 percent of Data General's business today, but investors are more interested in its smaller unit, which sells data storage equipment. For starters, computer network servers are the kind of products that face bone-crunching competition from huge companies with resources to spare. Data General can make money selling its Aviion servers, but it isn't going to muscle its way into the front line of competition. ''Their server business does not have critical mass,'' Howe said. ''They don't have the scale necessary to go up against the Dells of the world.'' Not to worry. Data storage is hot right now, and Data General has top-notch fiber-channel technology available for its hardware. The growth of computer systems and the Internet have generated explosive demand for data storage, and lots of companies are cashing in. But who is going to sell Data General's storage gear? Data General has relied on other hardware companies, original equipment manufacturers, or OEMs, to sell its storage devices. But Data General's top OEM customer, Hewlett-Packard Co., is moving away from that relationship and is expected to all but disappear as a source of DG storage business. Hewlett Packard wasn't just a big source of revenue; it was a partner whose reputation for quality helped Data General products. ''It was a halo effect,'' said Robert Gray, research director for storage systems at International Data Corp. Data General has signed up Dell, another computer Big Foot, as a new storage OEM client, but analysts disagree about how much business the relationship will generate. Meanwhile, Data General is trying to quickly build its own sales force. That worked for EMC, but most analysts question how successful a new Data General sales team can be. ''From a technology point of view, their products are as good as anybody's,'' said Roger W. Cox, an analyst at Dataquest Inc. ''I think their issue is the marketing, sales, and support. They're going to compete against the giants, IBM, EMC, Compaq, and Sun.'' Does that sound to you like a market in which the little hardware company can thrive and stay independent? It's hard to imagine. Steven Syre (929-2918) and Charles Stein (929-2922) can also be reached by e-mail at boscap@globe.com. This story ran on page E01 of the Boston Globe on 05/14/99. © Copyright 1999 Globe Newspaper Company.