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Digital Equipment Corporation

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Known for systems such as PDP, VAX, Alpha. DEC was acquired in June 1998 by Compaq in what was at that time the largest merger in the history of the computer industry.

Digital Equipment Corporation is the world leader in implementing and supporting networked platforms and applications in multivendor environments. Building on its core competencies in software, systems, networks and services, Digital--working with its business partners--provides a complete range of information processing solutions from personal computers to integrated worldwide networks. Digital's products and services for open client/server computing are helping customers simplify business practices and enhance organizational productivity. The company does business in more than 100 countries and develops and manufactures products in the Americas, Europe and Asia/Pacific.

Overview - August 1996

Name:                           Digital Equipment Corporation
Headquarters:                   111 Powdermill Road,
                                Maynard, Massachusetts 01754-1418, USA
Phone:                          +01 508 493 5111
Chairman, President, and CEO:   Robert B. Palmer
Founded:                        August 1957
Operations:                     800+ Facilities in 100 Countries
Employees:                      59,100 (approximately)
NYSE symbol:                    DEC
Fortune 500 rank:               65th

Financial Highlights
                                      FY96                 Q4 FY96

        TOTAL OPERATING REVENUES      $ 14.562 billion     $   3.719 billion
      * NET INCOME (LOSS)             $ (111.8 million)    $  (432.8 million)

      * NET INCOME PER SHARE (LOSS)     ($0.97)               ($2.87)
        R&D; INVESTMENT                $   1.06 billion     $   266.7 million

 *  Excluding restructuring charge of $492 million, net income for Q4
    FY96 was $59 million, or $0.33 per common share and net income for FY96
    was $380 million, or $2.23 per common share.


Windows NT across the enterprise

Windows NT is clearly the next strategic operating system for enterprise computing, and many large companies are already embracing it -- much as they did a few years ago with UNIX. At this early stage in its lifecycle, Windows NT is most often used at the workgroup and departmental level. Our strategy is to help customers integrate Windows and Windows NT-based business applications with the enterprise.

The growing popularity of Windows NT reflects the natural evolution of the Windows desktop to the enterprise. We regard Windows NT as the key ingredient of the emerging client/server computing model. It will drive the servers that link the desktop with enterprise databases, legacy systems and global networks.

Building on our strategic partnership with Microsoft, Digital will deliver complete Windows NT enterprise solutions -- including hardware, software, services and systems integration.

Digital/Microsoft Alliance. Digital and Microsoft have had a cooperative relationship for more than a decade. But we significantly broadened our partnership in August 1995 by combining our complementary technologies and forming the Alliance for Enterprise Computing. It is the most comprehensive partnership Microsoft has with any company and includes joint activities ranging from engineering and cross-licensing agreements to marketing and sales. Our goal is to drive sales of the systems, connectivity software and services necessary to deploy enterprise-wide solutions on Windows-based systems in today's multivendor environment.

The alliance has several components, including the OpenVMS Windows NT Affinity Program; mail solutions based on Microsoft Exchange and Digital products; products and services to help customer with Windows NT and Netware coexistence or migration; solutions and bundled systems based on Microsoft BackOffice; and, software and hardware to support customer migration to Windows 95.

The agreement represents a significant endorsement of Digital's Alpha architecture. Microsoft will release server software simultaneously on both Alpha and Intel systems. In addition, Microsoft engineers will work closely with Digital to maximize Alpha performance on key Microsoft products. More than 1,200 Windows NT applications are shipping on Alpha today, and well over 1,000 more are committed -- second only to Intel. As Terry Shannon, an analyst and editor of "Shannon Knows DEC," recently wrote, "According to a correspondent who conducted an informal ISV survey at Networld-Interop, a substantial number of developers plan to port their WNT apps to Alpha during the next 12 months."

"We won't predict that NT-based Alpha servers will take over every corner of the computing universe," PC Week wrote in a recent editorial, "but it seems clear that interest in NT as an application server will continue to gain momentum. As it does, interest in Alpha will increase hand in hand with it. . ."

The alliance also reinforces Digital's position as the largest training and support vendor in the world for Windows-based products, as well as a leader in systems integration for the Windows environment. With 800 Windows NT-certified engineers today, Digital is already the industry leader. Under the agreement with Microsoft, we will increase that number to 2,300 by mid-1997, giving Digital customers access to the largest group of Microsoft-certified engineers in the world.

"Digital has the leadership position today in providing NT-based high-performance, price/performance platforms for production, enterprise applications," says the Aberdeen Group Inc., a computer and communications research and consulting organization. "Aberdeen does not believe that any other major systems supplier will be able to surpass Digital's position within the next several years."

Natural affinity: OpenVMS and Windows NT. When it comes to mission-critical operating systems, the OpenVMS operating system is unmatched for its rich functionality, scaleability, high availability and very high reliability. Today there are more than 450,000 VMS systems and 10 million VMS users around the world. This represents a large investment by our customers in Digital and its technology.

We are committed not only to maintain but to build upon OpenVMS' leadership functionality. In December 1995, Digital introduced a new 64-bit version that runs 64-bit Oracle RdB software, allowing our OpenVMS customers to take advantage of the same very large memory technology available on our UNIX platforms. All applications written for 32-bit versions of OpenVMS will work on Alpha servers and workstations running the 64-bit version. "This should put to rest the rumors that Digital is no longer investing in OpenVMS," said Terry Shannon.

As part of our alliance with Microsoft, Digital is protecting customer investment by integrating OpenVMS with Windows NT through the OpenVMS Windows NT Affinity Program. With the delivery of our Affinity Wave One products, current OpenVMS customers can easily add Windows NT servers -- along with Windows NT's huge application library -- to their computing environments. Windows NT users can easily add OpenVMS back-end servers to create Windows-based solutions with true 24X365 availability, disaster-tolerance and scaleability.

By meshing OpenVMS and Windows NT, Digital is providing customers with the scaleability, reliability and cost-effectiveness they need while making a software investment in the operating environment of the future. Together, OpenVMS and Windows NT add up to a powerful enterprise solution.

Connectivity within and across enterprises

Delivering connectivity solutions is the very foundation of Digital's history. From interactive computing with the PDP and VAX families to networked computing with DECnet, Digital has been a pioneer in the development of systems that connect people to people. . . people to information. . . and business to business.

With the complexity of enterprise client/server computing and the emergence of internetworking, the need for comprehensive connectivity solutions is growing dramatically. By the year 2000, 95 percent of information technology customers will be dealing with a combination of three operating environments -- UNIX, Windows NT and proprietary systems. Their biggest challenges will be to make these systems work together and to build inter-enterprise links to their customers, partners and suppliers throughout the world. So Digital is investing in the network hardware, connectivity software and client/server services -- and the partnerships -- that will provide the connectivity customers need.

Digital=Internet. For many of our customers, the Internet is connectivity, and Digital brings to this market two decades of experience with the Internet. Digital was the first computer company on the Internet's predecessor, ARPAnet; the first Fortune 500 company with a commercial World Wide Web server; and the first computer vendor to use the Internet for interactive ordering, which produced more than $100 million in revenue in the United States in 1995. "As more cautious companies are only now fumbling to stake their claim in electronic commerce, Digital is already putting the money in the bank," said Dataquest, a market research company.

Digital's use of the Internet spans every facet of the corporation, from sales and marketing to ordering, service and support. And we are putting that expertise to work for customers by developing the industry's most comprehensive portfolio of Internet connectivity solutions, including Internet security "firewalls", Internet messaging, Internet team collaboration, Internet-ready networking, Internet servers, Internet services and strategic relationships with Internet applications partners like Netscape and Open Market.

"Here's what really impresses me about the Digital strategy," said analyst Nina Lytton, president of Open Systems Advisors. "They've been working on this for a long time and have evolved a complete approach both in terms of software, hardware and services."

Digital's new Internet Tunnel software, for example, allows enterprises to use the Internet as a cost-effective alternative or extension to private networks. With this product, remote PCs and servers can connect to private networks via the Internet. By using the tunnels, companies can replace leased communication lines with bandwidth supplied by Internet Service Providers, reducing network management and operations costs. The Digital Internet Tunnels incorporate sophisticated authentication and encryption technologies to keep sensitive data from hackers or unintended readers.

Digital also has developed the most advanced information search and indexing technology available for the World Wide Web. This "super spider" software -- code-named Alta Vista -- allows users to search the entire Web text at speeds up to 100 times faster than spiders used in conventional information services. This technology, powered by Digital's 64-bit Alpha architecture and high-speed network switching, promises to surpass the limitations of current information services by delivering the most complete, precise and up-to-date information of the Web's entire text. Gregg Cline, a market analyst at Business Research Group in Newton, MA., called the software "very impressive, very fast and very comprehensive. It's a great example of what an application can do when software catches up to hardware." And Jack Schofield, computer editor of The Guardian in England, wrote, ". . . Alta Vista is my favorite word-search engine. . . It is the power and speed of the searching that makes it great. It can do searches nothing else can manage."

A lot of people agree. After only three weeks on the Web, Alta Vista became one of the most popular sites on the Internet, reaching more than 2 million hits per day.

From custom-designed security firewalls to collaboration products like Workgroup Web Forum -- which was named hot product of the year by Data Communications magazine -- Digital and its partners provide companies with cost-effective products and services that open up vast new business opportunities through global connectivity.

System Platforms

Intel + Alpha. One of Digital's most important strengths is the unparalleled scaleability we offer across two platforms -- Intel and Alpha. Our dual platform strategy offers customers the broadest choice of scaleable systems: Intel-based notebooks, PCs, Personal Workstations and servers; and Alpha systems ranging from Personal Workstations to clustered mainframe- and supercomputer-class servers.

Intel will clearly remain the volume leader in microprocessors, so other architectures must provide a compelling performance advantage over Intel to be credible and to survive. Digital's 64-bit Alpha architecture must and will continue to outperform the latest Intel chip by a significant margin. Few if any of the other RISC architectures will be able to maintain the same kind of sustainable, long-term performance edge. "...the X86 architecture has caught up with most of the RISC designs, and with the advent of the P6, poses a serious threat to all RISC manufacturers, with the exception of Digital and its Alpha processors," writes Dataquest.

Alpha: leadership in 64-bits. Customers are buying Alpha systems for a lot of reasons. Power-hungry applications; multimedia, visualization and modeling; 64-bit database software, decision support, data warehouse and OLTP applications; Internet and interactive video servers: all are driving demand for the performance and fully-realized 64-bit computing environment that only Alpha delivers. So far, customers have bought 170,000 Alpha systems, and total Alpha revenues now exceed $7 billion from systems, after-market products and services.

High-performance computing is a requirement in a growing array of business applications. But Alpha is not just helping companies perform traditional business operations faster and more efficiently. It is also enabling entirely new capabilities, like cost-effective video-on-demand and cellular fraud detection.

"Alpha's superior performance is not only relevant, but crucial in the server arena," PC Week wrote in an editorial. "While a desktop purchasing decision can be driven by price, the server-hardware purchasing decision is very much performance-driven -- a server that's a lot faster than others (all other things being equal) is almost certain to do well."

More and more companies are choosing the AlphaServer 8400 system, for example, because of its unequaled performance and price/performance. With up to 12 processors and 14 GBytes of memory (32-bit systems can address a maximum of 4 GB of data, although most systems today are limited to 2 GB), the AlphaServer 8400 system offers three times the performance of HP's 9000-800 T 500 and twice the performance of Sun's SPARCcenter 2000E and IBM's SP-2 systems. And with VLM technology, it delivers even more dramatic improvements in application performance. That's why readers of Datamation magazine picked the AlphaServer 8400 system as "Server of the Year" for 1995.

Best Western International, for example, bought 10 AlphaServer 8400 systems to power the company's new worldwide central reservations system. "We selected the Digital/Oracle/UNIX solution because of its superior performance, flexibility and growth potential -- at one-tenth the cost of competing systems," said William S. Watson, Best Western's executive vice president. "We expect the Digital/Oracle solution to dramatically improve our ability to respond more rapidly to customer needs. . . to increase our sales and revenues, and to enhance our company's image."

According to a customer satisfaction survey conducted for Computerworld, Digital's large-scale Alpha servers ranked first in four of five categories, ranging from performance and CPU reliability to scaleability, service and support -- outpacing servers from HP, IBM and Sun.

Digital also delivers outstanding performance and price/performance in the mid-range, and we continue to improve on our leadership. The exceptional performance of the AlphaServer 2100 system, for example, has been enhanced by Digital's 300 MHz Alpha chip. According to audited benchmarks, the AlphaServer 2100 system is the industry's fastest Windows NT server, with a TPC-C open systems benchmark of 3,194 tpmC.

"For industry observers that did not believe that NT would be scaleable to meet the OLTP. . . requirements of large departments and small-to-medium-sized enterprises, this is a strong 'Think Again' wake up call," wrote Aberdeen Group in a December 1995 product report.

In the workstation business, we are concentrating on markets where customers place a high value on performance: electrical design, mechanical design, energy and science, geographic information systems and technical software engineering. In each of these areas, we are building strategic partnerships with key application providers, from Autodesk and Parametric Technologies to Mentor Graphics and ERDAS.

Digital now owns the absolute performance and price/performance leadership at all price points, from $5,000 to $50,000. And we deliver the kind of performance customers want -- application performance. Our high-end AlphaStation 600, for example, delivers application performance as much as twice that of HP, Sun and Silicon Graphics. It received AIM Technology's 1995 Hot Iron Award for Best Workstation Peak Performance for systems priced from $25,000. "Normally you see a 10 to 20 percent performance gain from a new product," said Tom Copeland, an analyst with International Data Corp. "Here you see a machine that is double its nearest competitor using standard benchmarks."

Digital is also meeting the needs of its customers with new technology that will give our Alpha systems high-performance x86 compatibility. Developed by Digital Semiconductor, FX!32 software will allow Alpha system users to access all of their 32-bit Windows applications as if they were using an x86 system. For Win32 applications, performance will be comparable to or better than on x86 systems. Both the Windows 95 and Windows NT operating systems use the Win32 API. All 16-bit applications will be accessible through Insignia Solution's SoftWindows product. Calling the new product "revolutionary," BYTE magazine awarded FX! 32 its prestigious "Most Significant Technology" award at Fall 1995 COMDEX -- the second year in a row Digital has claimed this honor.

"[Y]ou now have a compelling reason to switch [to Alpha]: a huge performance difference (even compared to the Pentium Pro) and the ability to host that huge investment in x86 software your business has made," BYTE magazine declared in a recent edition.

A growing force in the PC market. From nowhere in 1992, Digital has become the 11th largest PC company in the world (Dataquest, 1995). That growth is the result of our strategy to deliver best-in-class PCs to all our customers, from the home to the enterprise.

Our commitment to customers is to build high-quality Intel-based servers and personal computers that offer the latest technology at the right price points; make them available through the distribution channels from which customers want to buy; and, provide outstanding service and support. Digital offers a full range of desktops, notebook computers, personal workstations and PC-class servers.

The Prioris HX line of highly scaleable, Pentium-based, symmetric multiprocessing systems, for example, recently won PC Magazine's Editor's Choice Award for Departmental File Servers. "This server has one of the most advanced designs in this roundup and, with its bridged PCI buses, clearly shows that Digital is looking and leaping toward the future," the magazine wrote. Digital also offers a complete line of entry-level and mid-range Prioris servers. We are now the 4th largest vendor of PC servers in the world.

Digital's breakthrough ultraportable notebook, the Digital HiNote Ultra computer, continues to win rave reviews. In a recent test conducted by Business Week magazine, the Digital HiNote Ultra outperformed Hewlett-Packard's Omnibook and the IBM ThinkPad "butterfly." It also received the Editor's Choice Award from PC LapTop Computers magazine as "Laptop Innovation of the Year." The Digital HiNote Ultra, wrote editor-in-chief Michael Goldstein, "is clearly the last word in laptop innovation."

On the desktop, we have a complete line of outstanding products, from the high-performance Celebris GL to the value-priced Venturis. The Celebris PCs combine performance, flexibility and ease-of-use with powerful Pentium processors, the latest multimedia and communications technologies and leadership network connectivity and management features. The Venturis is ideal for the home office and small business professional.

Digital is also a pioneer in the new market for Windows NT-based personal workstations -- powerful, workstation-class desktops with the look, feel and pricing of a PC. The Celebris XL is powered by high-performance Pentiums and can be upgraded to Pentium Pro or Alpha chips simply by swapping the daughtercard. "Combined with the growing number of NT workstation apps on the market, we think Digital's new line has the potential to turn the still-UNIX-centric workstation market on its head," said Windows Watcher, an industry newsletter.


Building the best network connectivity solutions. One of the keys to enterprise connectivity is a network infrastructure that gives companies the flexibility they need to run their business. Digital is committed to delivering the best network infrastructure solutions worldwide.

Digital is one of the leaders in the deployment of hubs, routers and switches in a single, integrated platform to provide users with a common hardware and software environment. In a recent report, Gartner Group identified Digital as one of five top networking companies who "have the best potential for helping users build enterprise-level networks. . ."

Our networking products enable customers to make the transition from today's shared bandwidth environment to a more cost-effective, high-performance solution -- switched, open client/server network infrastructures. We offer a comprehensive suite of products, including state-of-the-art hubs, routers, switches, network adapter cards and leading edge technologies for Ethernet over cable TV.

What differentiates Digital from our competitors is our ability to deliver a robust set of technologies that work together in an overall, single-source solution. With our enVISN (Enterprise Virtual Intelligent Switched Networks) strategy, Digital provides customers a clear path to the future. The enVISN architecture combines virtual LAN technology, distributed routing and high-speed switching with centralized, policy-based administration to create flexible virtual networks. These virtual networks can be customized to application and business needs. Digital offers a modular, "building block" architecture and enables the customer to take full advantage of new technologies as they are needed, while making the most of existing technologies.

Digital is an acknowledged leader in key segments of the market. We are No. 2 in switching and No. 3 in both hubs and routers. Dell'Oro Group also ranks Digital No. 1 worldwide in FDDI (Fiber Distributed Data Interface) switching, a standards-based technology that significantly increases network bandwidth and performance.

Leading storage solutions. With the incredible amount of data that companies handle today, the ability to store and manage information is becoming more important than ever before. Digital's Storage Business Unit concentrates on storage subsystems, networked storage and storage management systems.

We created our StorageWorks architecture -- a line of high-performance, flexible, scaleable, modular products -- to meet our customers' needs for enterprise-wide storage solutions in multivendor environments. The core components can be easily installed, deployed and maintained across multiple operating systems and hardware platforms. Digital's StorageWorks products are available today for Digital, Hewlett-Packard, IBM and Sun workstations and servers, and Novell and Windows NT environments.

Since we introduced our first StorageWorks products in 1993, Digital has established itself as the leading supplier of open multivendor storage array solutions. To sharpen our focus on this business, Digital sold operations that were not strategically critical to the corporation -- the magnetic disk drive, tape drive, solid-state disk and thin-film head business -- to Quantum Corporation in late 1994.

Companies implementing Digital's StorageWorks approach have the unique ability to incorporate leading-edge storage components and re-deploy existing disk, tape and optical modules across a growing number of platforms. The ability to incorporate new storage technologies while protecting current investments, together with the high performance and availability for which our products are known, has made the StorageWorks brand one of the most popular among information systems managers around the world.

Components & Peripherals for the connected enterprise. Digital is also connecting enterprises with products that help companies manage their information technology assets and increase productivity in a multivendor environment.

One of Digital's most innovative connectivity platforms is our Multia family of enterprise clients, which includes both Pentium- and Alpha-based systems. Our newest product -- the Pentium-based Multia MI -- fully integrates access to Windows NT, Windows 95, Windows 3.1, UNIX, OpenVMS and mainframe applications on a single desktop. It is the first enterprise client to provide high-speed connectivity, ease-of-use and manageability in a platform that bridges the gap between legacy applications and Windows NT. Embedded software provides immediate access to corporate networks, servers and applications, as well as remote configuration management capabilities.

"With Multia, end-users can now have access to the information they need wherever it is located, while IS management can now effectively gain centralized control of that desktop and provide users with a high degree of services," an Aberdeen Group report on Multia noted. "Digital is the only major computer maker that has been able to comprehend and translate these specific IS requirements into a product deliverable."

Digital also delivers advanced print solutions for the open, networked computing environment through our Printing Systems Business. The shared/network printers of our PrintServer family are fast, powerful laser printers that connect directly to an Ethernet network. Digital is also partnering with other leading companies to deliver open system printing solutions to our customers. For example, we are collaborating with Xerox Corporation and SunSoft Inc., to develop the computer industry's first platform-independent network printing service for UNIX systems.

In addition, Digital's Embedded and Real-time Business develops and markets products based on next-generation hardware and software for the specific requirements of original equipment manufacturers. The business targets market segments where Alpha, PCI and Embedded and Real-time software technologies offer clear competitive advantages.

Leadership in high-performance semiconductors. Digital Semiconductor continues to establish a strong reputation as a merchant vendor in the semiconductor industry, broadening its product portfolio and attracting new customers.

The Alpha architecture is already the RISC volume and performance leader for Windows NT applications. With Digital's FX! 32 translation-emulation technology for x86 compatibility, we are strengthening Alpha's position as the number one RISC architecture for the overall Windows market.

Alpha microprocessors have kept the performance lead in the very competitive chip industry for more than three and a half years -- an unprecedented feat. With new, higher-performance products scheduled for introduction in 1996 and 1997, Alpha will continue to maintain a lead over all other microprocessor architectures.

That leadership is helping us win new customers and new applications at an accelerating pace. It is also attracting more and more companies who want to manufacture Alpha products. Nearly two dozen hardware manufacturers now build Alpha-based workstations and servers.

Digital Semiconductor was an early supporter of PCI bus and interface technology and the first vendor to offer PCI-based Ethernet and Fast Ethernet chips. Network controllers using Digital chips command a major share of the PCI Ethernet market, and Digital's 21140 and 21140A PCI Fast Ethernet controller chips are also among the industry's leaders. Companies such as Apple Computer, Asante Technologies, Motorola, Cogent Data Technologies, D-Link Systems and Matrox Electronic Systems are among our network chip customers.

Digital Semiconductor also has a family of PCI video and graphics products intended for the PC market, including the 21130 chip for high-performance graphics and full-resolution video playback, and the new 21230 video codec (coder/decoder) chip for high-performance MPEG-1 video compression and decompression.

"MPEG-1 is becoming the motion video standard for PCs, and hence, the Internet," said Dataquest's Martin Reynolds. "The 21230 delivers quality real-time MPEG-1 compression to the mass market and could become a key enabler for this technology. Digital Semiconductor continues to flesh out the advanced subsystems that will become standard in future PCs."

In 1996, Digital Semiconductor will deliver the first of its StrongARM high-performance, low-power microprocessors, developed under a license agreement with Advanced RISC Machines Ltd. (ARM). The new family of StrongARM microprocessors will serve a rapidly growing market for personal digital assistants, TV set-tops, games and network computing devices.

The SA-110 StrongARM microprocessor is the first processor that can deliver the performance of a supercomputer while running on AA batteries. "The design of the SA-110 StrongARM chip has clearly involved PDA developers, smart phone manufacturers, set-top box suppliers and even companies exploring the Internet computer," said Tim Bajarin, president, Creative Strategies International. "This type of foresight heralds a new wave of mobile products which meet consumers' real needs."








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