Digital reports strong third quarter

Digital Equipment Corporation reported a strong third quarter performance despite weakness in Asia and the strength of the dollar which hit revenue growth.

The company, which employs more than 1,100 people at its operations in Dublin and Galway, said net income rose to $307 million (£219 million) in the quarter ended March 28th from $51 million a year earlier.

This was boosted by a once-off after-tax gain of $201 million from the sale of Digital's network products assets to Cabletron Systems. Income from continuing operations totalled $106 million or $0.65 per common share, an increase of 140 per cent on the year-earlier period.

The company's Irish operations reported a strong performance in the third quarter.

Digital Equipment Ireland, which is based in Dublin, said the quarter was particularly strong for both products and services.

"We are confident of sustained growth throughout the next quarter," said Mr Peter Donnelly, general manager.

Meanwhile, Digital's European Software Centre in Galway said its three divisions software development, software business and the multi-lingual telemarketing centre experienced a very busy and productive quarter.

But the strength of the dollar had an impact on overall revenue growth at Digital.

Total operating revenue for the quarter fell by nearly 4 per cent to $3.191 billion although in constant currency terms, it increased by 3 per cent.

Revenue and order rate growth in the Americas and Europe was encouraging, Digital said, but Asian revenue declined on a year-over-year basis.

Gross margins for the quarter edged up to 34.3 per cent from 33.4 per cent in the third quarter of 1997.

Digital chairman, Mr Robert B Palmer, said he was pleased with the overall performance. "We achieved this in an environment of continued problems in the Asian economy, a strong US dollar worldwide and an understandable, temporary hesitation by customers after our agreement to merge with Compaq was announced," Mr Palmer said.

Digital agreed to merge with Compaq in a cash and stock deal in January. The merger, which has been approved by the European Commission, remains subject to the approval of Digital shareholders and review by the Federal Trade Commission. Digital said the companies expect the transaction to close by the end of the current quarter.

Meanwhile, Compaq has also released results for the three months ended March 31st. Net income at the company, which issued a profit warning in early March, fell to $16 million from $414 million.

Compaq had warned that first quarter earnings were likely to fall far below market expectations because of weak demand for personal computers and plunging prices. First quarter sales increased by eight per cent, however, to $5.7 billion.