Digital Equipment Corporation

Digital Equipment Corporation (DEC), American manufacturer that created a new line of low-cost computers, known as minicomputers, especially for use in laboratories and research institutions. Founded in 1957, the company employed more than 120,000 people worldwide at its peak in 1990 and earned more than $14 billion in revenue. It was bought by Compaq Computer Corporation in 1998.

Digital was founded by Kenneth Olsen and Harlan Anderson, electronics engineers at the Massachusetts Institute of Technology (MIT), with the idea of building a family of high-performance, low-cost computers that could receive and analyze data from a wide array of scientific instruments. The influential business magazine Fortune had published an article showing that few companies were making any profit selling computers, and so Olsen’s first business plan referred to building electronic “modules” in order to appeal to his nontechnical investors. Digital’s first computer, the Programmed Data Processor, or PDP-1, was sold in November 1960. Eventually 50 PDP-1s would be sold, nearly half to International Telephone and Telegraph for message switching systems.

Based on technology developed at MIT for the Whirlwind Project (1944) and Project Lincoln (mid-1950s), the PDP-1 had one of the most advanced memory systems of its time and brought many innovations to the commercial marketplace. For example, the PDP-1 incorporated the transistor-driven core memory design of the TX model computers built by Olsen during Project Lincoln, and the machine improved upon the Whirlwind computer’s timesharing capability—i.e., the ability to be used by more than one person at a time. This capability made the PDP the first machine employed for multiuser computer games when MIT students created SpaceWar! in the early 1960s.

The PDP line of computers sustained Digital’s growth for nearly 20 years. The PDP-8 was the first minicomputer to achieve significant market success. (See the photograph.) When it shipped in 1965, it offered the first viable alternative to mainframe computers—the powerful, but expensive, machines built by companies such as the International Business Machines Corporation (IBM) and the Sperry Rand Corporation (makers of the UNIVAC computer). The entire PDP line had advanced features that appealed to a variety of technical markets. For example, the PDP-11, introduced in 1970, was the first computer to ship with a separate data communications path, called the UNIBUS, that did not require using the resources of the central processing unit to move data inside the system. Moreover, Digital competed on price with other minicomputer competitors (such as the Hewlett-Packard Company) by reducing its manufacturing costs through various innovative programs, including building assembly plants in inner cities where it hired and trained only local residents. In 1971 Digital set up its European manufacturing operation in Ireland—a move that paid off in 1973 when Ireland was admitted into the European Common Market, helping the company quickly to seize a sizable market share in Europe.

Between 1960 and 1970, Digital grew from a local computer company with 117 employees and $1.3 million in revenue into a global company with 5,800 workers generating $135 million in sales. By the mid-1970s, however, the company’s leadership in the minicomputer market was being challenged by IBM and other companies. In 1978 Digital introduced the VAX (Virtual Address eXtension) computer, arguably the most successful minicomputer in history. The VAX line of systems ranged from low-cost desktop workstations to high-end computers that challenged IBM’s most powerful mainframes. Its operating system, known as VMS (Virtual Memory System), became popular among software developers, giving VAX users a large selection of software applications. In the early 1980s, Digital also helped to develop a version of the UNIX operating system to run on the VAX, in part to appeal to university departments where UNIX was popular but also to compete against Sun Microsystems, Inc., Silicon Graphics, Inc., and other computer vendors who sold systems using UNIX. By 1990 VAX sales had propelled Digital into the number-two computer sales position (behind IBM).

However, Digital’s success throughout the 1980s did not continue in the next decade. Hit hard by the 1991–92 general economic recession in the United States, Digital lost market share to Hewlett-Packard and Sun, companies whose adoption of the nonproprietary UNIX operating system made far more software applications available than Digital’s proprietary VMS. The company did not make a profit at all between 1990 and 1995. In response, the board of directors removed Olsen as top executive, replacing him with Robert Palmer, an executive at Digital since 1985. In 1995 Palmer succeeded Olsen as chairman of Digital.

Meanwhile, the company continued to introduce a variety of new products. Its Alpha microprocessor was possibly the fastest chip in the world when it began shipping in 1994; its search engine for the World Wide Web, Alta Vista, became one of the most frequently visited Internet sites; and the company’s services division was one of the most respected and profitable in the industry. Despite these advantages, Digital’s efforts to counter competitive pressures in its main business of minicomputers and workstations were insufficient. Likewise, its personal computer business failed; beginning in the early 1980s with its Rainbow PC, Digital never succeeded in earning money in this fastest-growing segment of the computer market. By 1997 it became a target for acquisition, and in 1998 it was purchased by Compaq in a cash and stock transaction totaling $9.6 billion. By that time Digital had 53,500 employees, less than half of its 1990 peak.