730608 DECsystem-10 Charter

This document, dated June 8, 1973, outlines the charter, objectives, concerns, and strategic plans for the DECsystem-10 product line for the upcoming two years.

Core Mission & Objectives: The DECsystem-10 is fundamentally in the large computer systems business, providing on-line data processing and hierarchical network solutions. Key objectives include:

• Achieving profitable, long-term sales, field services, and software support operations.
• Growing markets to over $100 million per annum.
• Developing new products (like KL10 and Typeset-10) to enhance market share.
• Complementing the corporate minicomputer business.
• Specific short-term goals include achieving >30% contribution, completing the KL10 program for September 1974 shipment, establishing KA10/KI10 as profitable upgrade products, completing software unbundling, and establishing market leadership in timesharing.

Major Concerns: Significant challenges include critical space problems (engineering, manufacturing, refurbishing), potential negative short-term impact on shipments/profits from the KL10 introduction, uncertainty about the viability and marketability of Typeset-10, difficulties in software management (late/wrong products, conflicts), weakness in systems and marketing management, dilution of the 10-sales effort, the necessity of a rental program for government business, increasing low-end competition (DG, Interdata), and the potential for a recession.

Strategic Plans:

1. Market Plan:

   • Competition: Facing tough competition from Xerox (aggressive, good product), IBM (networks, typesetting), and others like Honeywell, Univac, CDC, NCR, with new threats from DG and Interdata in the low-end.
   • Pricing: KL10 introduction in FY75 will lead to significant price reductions for existing products. Software will comprise a larger percentage (up to 20%) of customer spend. Price reductions are expected in Q3/Q4, with 4% budgeted.
   • Sales Force: Plans to grow the sales force to 100 specialists by KL10 introduction (from 70 now, up from 45). There's a focus on lower-price systems ($400K-$600K) and selling "tools" over "total solutions." Reduced sales yields are planned to fund growth.
   • Advertising: Budget primarily for the Q4/74 NCC introduction of KL10, with heavy advertising in the subsequent year, shifting to a more focused strategy for 18 months.

2. Product Plan:

   • Extensive hardware development includes new mass storage (discs, tapes), communications units, and most importantly, the new KL10 processor and associated memory/controllers.
   • Software development is also robust, including new monitors (5.07 for KA10, 6.01/VIROS for KL10), Message Control System (MCS), Data Base Management (DBMS), FORTRAN-10, and Typeset-10, with increased emphasis on TOPS-10 for KL10.

3. Service Plan:

   • Hardware: Offering standard maintenance contracts, on-site spares, and guaranteed uptime/crash rates. A key strategic shift is towards more on-line diagnostic and error detection capabilities, especially with the KL10, potentially involving remote communication links.
   • Software: Moving towards unbundling services, charging for major monitor updates (including a 1-year warranty), and offering additional services like training and program conversions. The aim is to make software services profitable, as maintenance services are not expected to break even.

4. Manufacturing Plan:

   • Inventory: Finished goods inventory is targeted for a $6.0M reduction in Q4 74, aligning with the phase-out of older products. The product line is responsible for inventory management, and an increased shipments budget is improving backlog and inventory.
   • Cost: Efforts are focused on decreasing costs through engineering, purchasing, and achieving higher markups (up to 5x) on in-house electronic items with the KL10. Better cost accounting and standards are needed.

5. Area Plan (International):

   • Europe and General International are showing growth and profitability, though sustaining Europe's "superb" profitability is questioned, and General International needs dedicated management support.
   • North America is a major focus, with efforts to build up the DECsystem-10 sales force, recovering from a slow start in FY73. Growth is expected in Canada (due to local pricing) and the USA (due to ease of hiring).

Financial Outlook (FY73-FY75 Projections): The plan projects substantial growth in Net Operating Revenue (NOR) from $34.9M in FY73 to an estimated $58.3M in FY75. Gross Margin (GM%) is expected to remain stable, around 50-57%. The KL10 segment is projected to be a significant new revenue driver, contributing an estimated $25.0M in FY75.