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Digital Equipment Corp · 10-K · For 7/2/94 · EX-13

Filed On 9/16/94 · SEC File 1-05296 · Accession Number 28887-94-22

  As Of               Filer                 Filing     On/For/As Docs:Pgs

 9/16/94  Digital Equipment Corp            10-K        7/02/94    7:98

Annual Report · Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         14     92K 
 2: EX-10       Exhibit 10(K)                                          4±    17K 
 3: EX-10       Exhibit 10(L)                                         17±    70K 
 4: EX-11       Statement re: Computation of Earnings Per Share        2     12K 
 5: EX-13       Annual Report                                         57    315K 
 6: EX-22       Published Report Regarding Matters Submitted to        3±    16K 
                          Vote of Security Holders                               
 7: EX-24       Power of Attorney                                      1      7K

EX-13 · Annual Report
Exhibit Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (RTF, XML, et al.) NETWORKS Opening the Information Superhighway
1	1st Page
14	NETWORKS Opening the Information Superhighway

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Digital Equipment Corporation                                                   
Maynard, Massachusetts 01754                                                    

Digital Equipment Corporation                                                   
Annual Report 1994                                                              

Corporate Profile                                                               

Digital Equipment Corporation is a world leader in the development of           
networked platforms for client/server computing. Digital's products and         
services for open computing environments help customers simplify business       
processes and enhance organizational productivity. The Company does business    
in more than 100 countries and develops and manufactures products in the        
Americas, Europe, Asia and the Pacific Rim. 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.             

Financial Summary                                                               
Fiscal Year                               1994                    1993          

Total operating revenues             $13,450,790,000       $14,371,369,000      
Restructuring charges                $ 1,206,000,000               -            
Net loss                             $(2,156,063,000)      $  (251,330,000)     
Net loss per common share            $        (15.80)      $         (1.93)     
Total stockholders' equity           $ 3,279,799,000       $ 4,885,399,000      
Number of common stockholders                 77,722                86,611      
Stockholders' equity per                                                        
common share                      $         20.24       $         36.19   
Number of regular employees                   77,800                89,900      

Annual Meeting                                                                  

The Annual Meeting of Stockholders will be held at 11:00 a.m. Thursday,         
November 10, 1994, at the World Trade Center, Commonwealth Pier, 164 Northern   
Avenue, Boston, Massachusetts 02210. Stockholders of record on Monday,          
September 12, 1994, will be entitled to vote at this meeting.                   

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Contents                                                                        
2       President's Letter                                      
4       Q&A with Robert B. Palmer                               
6       Open Client/Server Computing                            
8       Software                                                
12      Systems                                                 
16      Networks                                                
20      Services                                                
24      Teamwork                                                
25      Financial Statements                                    

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Open Client/Server Computing Solves Real Business Problems                      

"We have the ability--directly and through our partners--to implement and       
support networked platforms and applications in multivendor environments more   
quickly and cost effectively than anyone else".                                 

"This capability is making Digital the leader in open client/server             
computing--the combination of technologies that enables PCs, laptops,           
workstations and other devices to tap into computers so that these systems      
and the people who use them can share data and work together."                  

--Robert B. Palmer, President and Chief Executive Officer                       
Digital Equipment Corporation                                               

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[Photograph of Robert B. Palmer]                                                

President's Letter                                                              

To Our Stockholders, Employees, Customers and Partners                          

Fiscal year 1994 was a year of both progress and frustration for                
stockholders, for employees, for our customers and for our partners.            

For the year, Digital reported a net loss of $2.16 billion, which includes      
a restructuring charge of $1.2 billion and noncash asset write-offs and         
accounting changes of $431 million. I am obviously disappointed with these      
results. However, with the actions we took last year, including reducing        
regular employee population by 12,000 and total occupied space by 5.2 million   
square feet, and our announced restructuring plans for the future--for          
example, the elimination of Digital's inefficient matrix management system--I   
am confident that we have established a solid foundation for a return to        
profitability.                                                                  

As we exited the year, our business showed some positive and encouraging        
signs:                                                                          

We achieved year-over-year product order rate growth in both the third        
and fourth quarters (the latter adjusted for a 14-week quarter a year         
ago). This is the first time in nearly five years that we have seen an        
increase in year-over-year order rate growth in consecutive quarters.         

We reached two significant milestones in our Alpha AXP program. We have       
shipped more than one billion dollars' worth of Alpha AXP systems since       
the program's launch in November 1992, and Alpha AXP revenues surpassed       
VAX revenues for the first time in the fourth quarter, growing 54 percent     
from the preceding quarter.                                                   

The new Digital 2100 Alpha AXP server, announced in the fourth quarter,       
got off to an excellent start. Market reception for this leadership           
price/performance product, which offers exceptional scalability, has been     
outstanding.                                                                  

Personal computer revenues demonstrated accelerating year-over-year growth    
rates each quarter, more than doubling in the fourth quarter and nearly       
doubling for the full year. We enter fiscal 1995 with a balance sheet that    
provides needed flexibility and resources and a portfolio of products and     
services more competitive than they have been in several years. We all        
want to see results quickly. We want the trauma of downsizing behind us       
and a return to sustained profitability. But it is important that we do       
not let our poor financial performance completely obscure the significant     
progress we have made in several major dimensions in less than two years.     

We enter fiscal 1995 with a balance sheet that provides needed flexibility      
and resources and a portfolio of products and services more competitive than    
they have been in several years.                                                

We all want to see results quickly.  We want the trauma of downsizing behind    
us and a return to sustained profitability.  But it is important that we do     
not let our poor financial performance completely obscure the significant       
progress we have made in several major dimensions in less than two years.       

Two years ago, our products were not competitive in performance or              
price/performance. Digital was a company wedded to its proprietary systems,     
with little or no credibility in the marketplace around our UNIX offering--a    
key requirement to be a competitor in today's open environments. Once merely    
an "also-ran," our UNIX is now a recognized leader in standards compliance      
for open computing.                                                             

Today, Digital can lay legitimate claim to being a truly open systems leader,   
giving customers the flexibility and alternatives that they want--and with      
leadership price/performance. Today we can truly say we support                 
industry-standard operating systems--UNIX, OpenVMS, Windows NT and              
MS-DOS--across a broad set of platforms.                                        

In two years, we have moved from being a company selling primarily through      
direct channels to one that has a healthier, market-driven mix of direct and    
indirect channels. In fiscal 1992, 29 percent of our products moved through     
indirect channels; in the year just passed (fiscal 1994), we sold 45 percent    
through indirect channels. And our goal for fiscal 1995 is more than 60         
percent--which will be achieved in large part by a strategic refocus of our     
core systems business models.                                                   

We are moving from being a low-volume, high-cost manufacturer and supplier      
to a higher-volume, lower-cost manufacturer and supplier. Over the past two     
years, unit volumes have exploded, driven by strong growth in PCs and Alpha     
AXP workstations. We shipped nearly four times the number of computer systems   
in fiscal 1994 compared with fiscal 1992, despite having reduced total          
worldwide manufacturing capacity. By the end of fiscal 1995, we will be         
shipping significantly greater volumes with a manufacturing population          
one-half the size of two years ago.                                             

We are refining our product and service cost structures to reflect the          
demands of our customers and the challenges of our competition--while           
establishing leadership price/performance across virtually every price band     
where we compete.                                                               

These are major accomplishments. Two years into the turnaround, we have laid    
the groundwork for our future success. We are succeeding in several of our      
businesses, and many of our new products are being well received in the         
marketplace. We are adapting the best and most successful business              
strategies--honed and proven in the competitive PC, storage, components and     
service segments of our business--and applying them on a larger scale across    
the company.                                                                    

But the question remains: with all that we have going for us, why aren't we     
yet leading the industry with the sheer force of our global resources, our      
unparalleled products, technology and skills? And why are we not yet            
profitable?                                                                     

The reality is that despite our progress we still have some critical issues     
to address--and that is our mandate for fiscal 1995.                            

To ensure that decisions made and actions taken will lead to financial          
success, we recently made one very important change to Digital's culture and    
business: we have cast aside matrix management and instituted clear             
accountability for revenue, profits, cash flows and assets within our           
business units. We are eliminating the costly infrastructure associated with    
the previous management system. The result will be a leaner, more decisive,     
more agile company, sharply focused on meeting the needs of customers, the      
demands of the marketplace and the challenges of our competitors.               

In today's complex multivendor computing environment, our customers value our   
ability to implement and support--directly and through partners--networked      
client/ server platforms and applications. We are convincing increasing         
numbers of customers that we can link computers worldwide--ours and             
others--and keep them working better than anyone else in the business.          

We will conduct our business by a few simple, strategic principles as we move   
through our transition to profitability: we will protect our installed base;    
we will organize and manage the company to market realities; we will not        
compete with our key partners; we will continue to build on our strength of     
high-performance networked platforms and engineer all of our products for       
network readiness; and we will differentiate Digital throughout the world by    
our outstanding global service and support capabilities.                        

We have done a great deal of work to prepare Digital to return to               
profitability and position it for a strong, innovative future. There is more    
work to do. And we will do it. My goal for the Company, its stockholders,       
employees, customers and partners is to capitalize on that work by restoring    
profitability in fiscal year 1995.                                              

Robert B. Palmer                                                                
President and Chief Executive Officer                                           
September 1, 1994                                                               

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Q&A with Robert B. Palmer                                                       
Commonly Asked Questions                                                        

Below are questions that stockholders and others frequently ask about the       
Company:                                                                        

Q: Digital has not been profitable for some time. When can we expect            
profitability, and what will it take to get there?                        

A: We have set an aggressive goal to return to profitability by the end of      
calendar year 1994. I cannot predict, however, when we will actually      
return to--and sustain--profitability; much work remains to be done. We   
must complete the restructuring plans we have announced, achieve a        
competitive cost structure, increase our penetration of indirect sales    
channels and build on the successes we have achieved in several areas,    
including PCs and Alpha AXP systems.                                      

Q: What are your financial goals?                                               

A: We are working aggressively to return to sustainable levels of               
profitability as soon as possible. As an interim goal, we have set a      
target of maintaining total gross margins (products and services combined)
in the range of 30 to 32 percent of revenues. This will require a         
continued focus on manufacturing efficiency and pricing discipline.       

We are targeting spending on research and engineering in the range of 7   
to 8 percent, and on selling, general and administrative expenses between 
15 and 18 percent of revenues. These targets will be achieved through     
successful implementation of our restructuring plan and through greater   
reliance on indirect channels of distribution. While we do not necessarily
expect to reach these spending targets for the full fiscal year 1995, we  
will make significant progress toward them.                               

Q: There have been many rumors that the Company is considering divestments.   
Can you comment?                                                        

A: For understandable business reasons, we cannot list what nonstrategic      
activities or operations the Company might divest in the future, but we 
can talk about our underlying strategic approach.                       

 As we strive to become more efficient, a critical element of our business
strategy is to sharpen our focus on those products and services where we
can provide added value to our customers as they choose and implement   
  open, networked platforms and servers. Activities that do not support that
focus are potential candidates for divestiture.                         

For example, we recently announced our intention to sell portions of our
storage business to a leading storage components manufacturer. The      
segments we are selling--disk and tape drives and thin-film heads       
businesses--have been fast-growing and successful for Digital in the OEM
(original equipment manufacturer) marketplace, but not central to our   
 business. We will continue to provide our customers with high-performance
  storage subsystems that incorporate disk and tape storage products that we
will source from outside the Company.                                   

Q: What are you doing to improve employee morale and ensure that you keep       
the talent you need to be successful in the future?                       

A: It's natural for people to feel good about their jobs when they can see      
success and for morale to suffer when the Company is doing poorly. Within 
businesses that are doing well--Alpha AXP systems, PCs, storage,          
components and peripherals, and customer service are all examples--morale 
is very good.                                                             

The best way to improve the morale of all employees is to return          
to sustainable profitability as soon as possible. All our efforts are     
focused on that goal. We need to move through the painful but necessary   
downsizing as rapidly as we can. We also recognize that compensation must 
reward performance and instill accountability throughout the organization.

Q: How will you provide the necessary cash for both your restructuring and      
operating needs?                                                          

A: The funding of our activities through the next phase of Digital's            
turnaround is a critical challenge for the Company and an important       
metric for management. We still have one of the lowest debt to total      
capitalization ratios among the Fortune 50. We have laid out a plan to    
fund our restructuring and operating needs from internal sources. We      
believe this plan is credible and achievable.                             

Our accounts receivable DSO (days sales outstanding) and inventory turns  
performance are not competitive today. If we had merely achieved the      
performance levels in these two asset categories that we achieved in      
fiscal 1993, we would have produced an additional $600 million in cash.   
We have specific plans in place to improve asset management. We also      
intend to cut capital spending this fiscal year by up to 40 percent       
compared with last year. Proceeds from divestments will further add to    
cash, and the Company has arranged for up to $600 million of backup       
liquidity in the form of an accounts receivable securitization facility.  

Q: So where does Digital stand today?                                         

A: We have a large and loyal installed base; a substantial--and growing--     
list of partners; a strategy that makes the best use of our strong      
technology heritage and potential; talented, dedicated and enthusiastic 
employees; very competitive hardware, software and service offerings;   
 and a balance sheet that enables us to continue to invest in our business
while taking necessary restructuring actions.                           

The pages that follow outline in detail what we believe are our sustaining    
advantages.                                                                   

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Open Client/Server Computing Advanced Technology for Today's Business           
Needs.                                                                          

Helping customers reengineer operations, open new markets and develop           
new products.                                                                   

"Digital's commitment to open client/server computing began with our        
customers. They told us what they wanted. And we made the investments and   
alliances needed to make client/server computing something more than just   
a concept."                                                                 

--Enrico Pesatori, Vice President and General Manager                     
Computer Systems Division                                             
Digital Equipment Corporation                                         

Many computer companies see client/server computing as the technology that      
links personal computers together in a local area network.                      

Digital sees it as much more than that.                                         

Client/server computing can enable customers to simplify business processes     
to enhance both individual and corporate productivity.                          

A client/server environment should be seamless, with no artificial barriers     
to keep people from sharing information and working together. At the same       
time, client/server computing splits applications to enable the                 
cost-efficient distribution of computing resources. Client systems--            
networked PCs, workstations and in some cases large systems--request            
services from other systems throughout the network.                             

We're working with customers and strategic partners to take the concept of      
client/server computing and apply it across the entire enterprise to            
integrate people, processes, technology and information so everyone and         
everything can work together.                                                   

This annual report details the products, services and technologies that are     
making client/server computing a reality. It qualifies and quantifies the       
client/server market and highlights the cost savings and productivity gains     
that client/server computing is bringing to Digital customers around the        
world. It gives customers, strategic partners and Digital developers an         
opportunity to share their thoughts about the future. And it explores new       
applications that are creating business opportunities for both Digital and      
its customers.                                                                  

Leadership in computer technology is not achieved overnight. The industry       
has always been driven by two very different needs.                             

First, the need for personal productivity, the need to access data and          
process information, a need that was met first by timesharing and later by      
personal computers.                                                             

Second, the need for organizational productivity, the need to gather,           
organize and process large volumes of data--a need that was met by the          
mainframe and later by peer-to-peer networks and clusters of midrange           
systems.                                                                        

Client/server computing brings these two very different styles of computing     
together.                                                                       

Digital's contribution was to develop the network platforms, software           
frameworks, integration and support services, strategic alliances, and          
business practices needed to fully implement the client/server concept.         
Working with our strategic partners, we are creating an open, enterprisewide    
computing environment to meet the needs of customers seeking to develop a       
competitive advantage or maximize the use of existing personnel and computing   
resources.                                                                      

As a company, we are focusing on our core competencies--the four                
prerequisites for leadership in open, multivendor client/server computing:      

Software--The software frameworks customers need to develop client/server     
applications and integrate PC, Macintosh, UNIX, OpenVMS, Windows NT, OSF/1,   
Sun, Hewlett-Packard, IBM and other systems.                                  

Systems--Powerful 64- and 32-bit client and server systems based on Alpha     
AXP, VAX and Intel microprocessors with the capacity to handle the huge       
amounts of information inherent in enterprise-wide client/server              
applications.                                                                 

Networks--The hardware and software needed to open up the Information         
Superhighway and link clients and servers--switches, routers, hubs, network   
adapters, network operating systems, and mobile/wireless and other            
telecommunications solutions.                                                 

Services--The systems and network integration and multivendor customer        
services needed to plan, design, integrate, implement, manage and maintain    
open multivendor client/server networks that include both legacy systems and  
new technology.                                                               

These four competencies are interrelated. And--combined with the              
organizational skills needed to develop and implement client/server           
environments--they provide the foundation upon which Digital, its customers   
and its strategic partners can base their future.                             

"Digital's Components Division delivers world-class products to build open,     
networked client/server environments that simplify business processes and       
increase productivity. We provide networking hardware, StorageWorks             
subsystems, printers, terminals and other components to Digital and other       
computer manufacturers, as well as to distributors and resellers."              

--Charles Christ, Vice President and General Manager                      
Components Division                                                   
Digital Equipment Corporation                                         

"If you profess support for open client/server computing, you have to support   
multiple operating systems. Digital is fully committed to UNIX, OpenVMS and     
Windows NT because they all have a place in client/server environments."        

--William D. Strecker                                                     
Chief Technical Officer and Vice President                            
Advanced Technology Group                                             
Digital Equipment Corporation                                         

With open client/server computing, we are helping customers reengineer their    
operations, open new markets, develop new products and improve both personal    
and corporate productivity.                                                     

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Software                                                                      
Frameworks for Open Client/Server Computing                                   

[Two photographs.  Top photograph of hubs and spokes linked together.  Bottom 
photograph of a man and woman standing near a table on which rests a Digital  
personal computer, the DECpc XL 590.  On and around the table are boxes       
containing Digital's LinkWorks software.]                                     

Teamwork--Digital, its strategic partners and independent software companies  
have developed more than 6,000 applications for Alpha AXP systems.  Here      
Alexis Cox and Don Harbison of Digital's Software Products Group are pictured 
with Digital's LinkWorks software and the award-winning DECpc XL590.          

"Our next version of OLE COM (the Common Object Model) will support all       
Microsoft platforms and--through our strategic relationship with Digital--    
multivendor systems in open client/server environments."                      

--Jim Allchin, Vice President of Advanced Systems                             
Microsoft Corporation                                                     

The idea behind open client/server computing is simple, but its execution is    
often difficult.                                                                

Client/server environments typically include computers from different           
manufacturers, multiple operating systems, multiple databases and multiple      
networks.                                                                       

Whether you approach client/server computing from an enterprise-wide            
perspective or take a departmental or application-specific perspective, you     
face a difficult and complex task.                                              

Fortunately, that task is becoming much easier. The software frameworks for     
integrating databases, electronic mail systems, local area networks and         
workgroup, production and technical applications across horizontal              
multivendor environments are in place together with the industry-standard       
"middleware" needed to link those applications.                                 

The Common Object Model being developed by Digital and Microsoft is an          
important component in frameworks and middleware, and in many client/server     
applications from Digital software partners.                                    

The concept behind object-oriented programming is straightforward. "Objects"    
are software building blocks--packages of data together with programming that   
applies to that data--that can be "linked" to create an application.            

The development of a common model for object-oriented programming for both      
personal computers and servers is critical in client/server computing, where    
different systems and applications have to work together. Having a common       
model simplifies program development.                                           

Ad hoc application--for example, searching multiple databases for specific      
information--can be created at the desktop by pointing to and clicking on       
"objects" on the screen. More complex applications take more work, but          
object-oriented programming is a welcome change from having to write line       
after line of code.                                                             

The Digital/Microsoft Common Object Model has been called the software          
equivalent of Ethernet. Ethernet provides a plug-and-play environment for       
linking personal computers and other systems together in local area networks.   
The Common Object Model provides a similar plug-and-play environment for        
software.                                                                       

Roughly one-third of the Fortune 1000 industrial corporations will implement    
their first object-oriented applications this year, according to a survey by    
Forrester Research, Inc.                                                        

Digital customers like Florida Power & Light, the Rehabilitative Services       
Commission and the Spicer Clutch Division of Dana Corporation have blazed the   
trail.                                                                          

These early adapters have reported a two- to fourfold increase in programmer    
productivity while developing new applications to give them an edge over        
their competition.                                                              

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Software                                                                        
Teamwork Brings It All Together                                                 

[Photograph of hubs and spokes linked together]                                 

"I tell customers interested in open client/server computing to start with      
software. If you have the right software, you can support just about any        
computer or operating system."                                                  

--William R. Demmer, Vice President                                           
Software Business Group                                                   
Digital Equipment Corporation                                             

"Establishing an information framework does not require a massive overhaul of   
existing technology. In fact, Digital LinkWorks software enhances existing      
systems by enabling them to become part of an open, enterprise-wide             
client/server network."                                                         

--Robert Staub, President                                                     
VW-GEDAS Group                                                            

VW-GEDAS: How Digital LinkWorks software simplified application development     
and user support VW-GEDAS, the systems integration subsidiary of Volkswagen,    
provides information-based solutions for both its parent company and            
commercial customers.                                                           

Many of these solutions are based on Digital LinkWorks, an "object-oriented"    
software framework for Windows applications. With LinkWorks software, files     
created on Lotus 1-2-3, Microsoft Word, Excel and other desktop applications    
can be packaged together as a single "object. These "objects"--or clusters of   
related information--can be organized and represented as icons.                 

This makes it easier for the user to access all the information on a            
particular subject without plowing through electronic file cabinets. The        
integration of desktop applications with corporate databases makes it easier    
for people to find the information they need to do their jobs. And it           
simplifies support by eliminating many of the user requests for reports and     
data that tie up data processing personnel.                                     

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Bank of Montreal: Sharing customer information without compromising             
confidentiality.                                                                

Many customers have legitimate concerns about making corporate or customer      
data available to employees. Unfortunately, many client/server applications     
lack the controls needed to ensure the confidentiality of this data.            

At the same time, data processing managers are concerned about the cost of      
developing and implementing client/server applications. Few software programs   
come in on-budget and on-schedule because, all too often, there is no           
framework around which programmers can develop applications.                    

One reason the Bank of Montreal decided to work with Digital in implementing    
client/server computing was that Digital could provide the frameworks           
required to simplify systems and data management, and messaging, workgroup      
and production applications.                                                    

Using these frameworks and object-oriented programming, the Bank of Montreal    
was able to provide authorized employees with easy access to corporate data     
without compromising customer confidentiality.                                  

"I can't stress strongly enough that this was a business project. We focused    
on finding ways to help people work together rather than on technology.         
Technology is just the means to an end. Digital understands that."              

--Mike Frow, Vice President                                                   
Bank of Montreal                                                          

Client/Server Growth CIOs in large companies expect the percentage of their     
client/server applications to increase from 5 percent in 1992 to 57 percent     
by 1995.                                                                        

1992   1995                                                                   
5%     57%                                                                  

Source: Deloitte & Touche LLP                                                 
[Bar graph represented by photographs of a hand on a keyboard]                

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[Two photographs.  Top photograph of Digital's Alpha AXP chip.  Bottom          
photograph of three men and one woman near a Digital 2100 Alpha AXP server.     
The caption relating to both photographs reads  "SYSTEMS  A Two-Platform        
Strategy: Intel and Alpha AXP".]                                                

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Alpha AXP systems like the Digital 2100 Alpha AXP server--shown here with     
George Murphy, Andrei Shishov, Rene Martinez and Fidelma Hayes of Digital's   
Systems Business Unit--combine raw speed with the ability to address massive  
databases.                                                                    

"Digital PCs and Alpha AXP systems are complementary. As a technological    
leader in personal, corporate and scientific computing, Digital is uniquely   
positioned to help its customers implement open client/server applications,   
whatever the platform."                                                       

--Bernhard Auer, Vice President and General Manager                           
Personal Computer Business Unit                                           
Digital Equipment Corporation                                             

In supporting network and client/server environments, Digital is focusing on    
two platforms: high-performance Intel personal computers and servers and        
Alpha AXP workstations, servers and systems with the highest performance and    
best price/performance in the industry.                                         

We support both 32-bit Intel and 64-bit Alpha AXP platforms because our         
customers need and want both. Buying decisions are based on applications and    
the speed with which a system runs those applications.                          

A high-speed bus can increase system performance. Digital manufactures and      
sells chips that implement the new, industry-standard, high-speed PCI           
(Peripheral Component Interconnect) bus. By building highly reliable personal   
computers and servers around this bus--systems that are easy to upgrade and     
have high-performance, high-capacity disks--Digital was able to offer           
superior price/performance together with a three-year warranty.                 

Combining technological leadership with comprehensive customer support,         
Digital broadened its distribution channels and doubled year-to-year personal   
computer sales.                                                                 

Today, Digital builds a complete family of high-performance Intel i486 and      
Pentium servers, and personal and notebook computers to run the thousands of    
applications that have been written for MS-DOS, Windows and Windows NT.         

Applications are also driving the sales of Alpha AXP systems. With more than    
6,000 UNIX, OpenVMS and Windows NT applications from independent developers,    
we have shipped over one billion dollars' worth of Alpha AXP systems since      
the program's launch.                                                           

Digital's Intel and Alpha AXP platforms are complementary. We have the          
PC-to-UNIX integration and networking software, the middleware and the          
multivendor service organization needed to integrate Intel and Alpha AXP        
systems in multivendor networks.                                                

As more and more customers link PCs and LANs in enterprise-wide networks and    
implement client/server applications, the need for faster processing speed      
and the ability to hold vast amounts of data in computer memory become          
critical.                                                                       

A 32-bit system can address only the equivalent of 96 file cabinets. This is    
why insurance, credit card, utility, distribution and manufacturing companies   
that process huge volumes of transactions and maintain massive databases are    
moving applications to 64-bit systems. At the same time, Alpha AXP systems      
provide the speed and raw computing power needed to tackle scientific and       
imaging applications that used to require multimillion-dollar supercomputers.   

While every major manufacturer of microprocessors has announced plans to move   
to a 64-bit RISC architecture, Digital is the only company to offer a           
complete family of 64-bit microprocessors, computers and operating systems.     

We're also addressing the needs of customers looking for systems to support     
mainframe downsizing and current applications with a complete line of Alpha     
AXP and VAX systems that support "industrial- strength" OpenVMS software.       

Many of the components and subsystems that account for the superior             
performance of Digital's systems are produced by our Components Division.       
Digital is a leading supplier of storage subsystems, networking products,       
terminals, printers and peripherals to other computer companies, systems        
integrators and distributors.                                                   

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Systems                                                                         
For Complex Commercial and Technical Applications                               

[Photograph of Digital's Alpha AXP chip]                                        

"Alpha AXP chips lead the industry in performance, setting a standard in the    
open market and building momentum for Digital as a merchant vendor of           
microprocessors and PCI peripheral chips."                                      

--Ed Caldwell, Vice President, Digital Semiconductor                          
Digital Equipment Corporation                                             

"It is not a question of when you will need 64 bits. It is a question of when   
you will need that thirty-third bit. For a lot of applications, that time is    
now."                                                                           

--Willy Shih, Vice President                                                  
Product Strategy                                                          
Computer Systems Division                                                 
Digital Equipment Corporation                                             

"You don't just buy technology, you make an investment. And when you invest     
you have to look at the long term. You can't afford to buy equipment that       
will become obsolete in a matter of years."                                     

--Richard C. Zbikowski, Project Manager                                     
Boston Edison Energy Management Center                                  

Boston Edison: Alpha AXP systems provide the power for realtime energy          
management and control. Few realtime applications are as demanding as energy    
management and control. Electric utilities like Boston Edison have to balance   
the supply and demand for power. This requires highly reliable realtime         
processing and specialized application software.                                

In updating its energy management and control system, Boston Edison was         
looking for a distributed, workstation-based solution that wouldn't become      
obsolete in a matter of years. They wanted an open architecture.                

They were one of the first, but by no means the last, major electric utility    
to move their energy management and control to Alpha AXP workstations and       
computers. In fact, of the 23 large (million-dollar-plus) energy management     
and control contracts signed by North American utilities in 1993, 13 of the     
wins went to Alpha AXP systems, according to a study by Newton-Evans Research   
of Ellicott City, Maryland. In the U.K., Southern Electric, Northern            
Electric, Yorkshire Electricity, SEEBOARD, London Electricity and the           
National Grid Company have all chosen Alpha AXP systems for major projects.     

Boston Edison chose Alpha AXP systems running UNIX and EMS/SCADA software       
over IBM RS6000 AIX systems. In addition to providing Edison with a             
price/performance advantage, Digital offered a 64-bit UNIX solution that        
supports clusters and multiprocessing while meeting X/Open and other industry   
standards. Equally important was the availability of EMS/SCADA realtime         
software from CAE Electronics, Ltd., a Digital Technical OEM partner. CAE,      
based in Montreal, Canada, is a worldwide leader in the development of power    
distribution systems and recently won two contracts to install Alpha AXP        
systems in China.                                                               

Boston Edison's Alpha AXP systems form part of a power distribution network     
that serves more than 650,000 commercial, residential and industrial            
customers.                                                                      

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First Data: How Unix and Alpha AXP technology gave a Digital business partner   
a competitive edge in the healthcare field. First Data Corp.'s Health Systems   
Group serves some 700 hospitals and healthcare facilities in the U.S. and       
international markets. The company designs and markets leading-edge             
healthcare technology solutions, including computer-based patient record        
applications. Three of their newest customer reference accounts are using       
UNIX-based Alpha AXP systems.                                                   

At Georgetown Memorial, Roper and Union Memorial hospitals, these systems are   
dramatically reducing the time it takes to run major reports and financial      
reconciliations. At Georgetown Memorial, reports that took four to six hours    
are now completed in 20 minutes. At Roper Hospital, monthly financial           
reporting that took 24 hours is now finished in one to two hours.               

On the strength of this performance, First Data is closing additional Alpha     
AXP system sales. With Alpha AXP systems and services, Digital provides First   
Data with a robust, industrial-strength UNIX together with the tools needed     
to develop and maintain complex client/server and database applications.        

And it is the ability to develop new applications that provides Digital         
business partners like First Data with the competitive advantage they need to   
succeed in a changing marketplace.                                              

"Digital has given us what we needed: UNIX that meets industry standards.       
Alpha AXP systems that set the standard for performance. And the kind of        
support that comes with a true business partnership."                           

--Larry Ferguson, President                                                   
First Data Corp.                                                          
Health Systems Group                                                      

How big is 64 bits?                                                             

If one bit of information is represented by the smallest printable dot--one     
pixel--a square representing 16 bits of information would consist of 65,536     
pixels, and would cover an area of about three-quarters of an inch. A square    
representing 32 bits would cover an area eighteen by eighteen feet. To          
represent 64 bits, 4 billion times larger than 32 bits, an area the size of     
Greece, 51,000 square miles, would be required.                                 

16 bits                32 bits         64 bits                                

.75 square inch        16 square feet  51,000 square miles                    

Source: Illuminata                                                            

[Graphical representation of 16 bits through a square representing .75          
inches; graphical representation of 32 bits through a square representing 16    
square feet with a figure standing in the lower left corner; graphical          
representation of 64 bits through a map of Greece representing 51,000 square    
miles.]                                                                         

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Networks                                                                        
Opening the Information Superhighway                                            

[Two photographs.  Top photograph of a busy highway interchange.  Bottom      
photograph of a man sitting on a table and a man and a woman standing behind  
a table on which rests the DEChub MultiSwitch. The caption relating to both   
photographs reads "NETWORKS  Opening the Information Superhighway".]          

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Networking no longer means making a choice among competing technologies. The    
DEChub MultiSwitch--pictured with Gary Vacon, Rich Graham and Cheryl Galvin     
of Digital's Network Product Business--provides a technology-independent        
backplane. ATM-ready, the DEChub MultiSwitch supports up to 16 Ethernet,        
Token Ring and FDDI plug-in modules.                                            

"We have a strategic relationship with Digital because we share a common        
goal: To make it easier for computer users and computers to work together.      
That's why Digital offers NetWare solutions and has incorporated Novell         
NetWare into its PATHWORKS network operating system."                           

--Bob Frankenberg, Chairman and CEO                                         
Novell, Inc.                                                            

The Information Superhighway is not a path from Point A to Point B. It is an    
emerging global information utility and commercial trade route that can be      
accessed by any computer, anywhere.                                             

Global access is not a concept developed by a government agency, nor is the     
Information Superhighway the creation of a giant corporation. In reality, the   
Information Superhighway is the network that is evolving from the interlinked   
communications systems that span the world.                                     

The Internet--an existing network of 21,000 computer networks in 60 countries   
that utilizes existing telecommunications links--is a prototype for the         
Information Superhighway, giving businesses and individuals a worldwide         
electronic mail network and access to remote databases, computer bulletin       
boards and applications.                                                        

At the same time, many telecommunications networks are supporting               
applications that are opening new markets and creating new business             
opportunities--Electronic Data Interchange (EDI), mobile and wireless           
communications, multimedia, video-on-demand, on-line transaction processing,    
interoffice and intercompany electronic mail, and electronic publishing and     
distribution.                                                                   

Many of these applications are based on open client/server technology. Take     
video-on-demand, for example. The set-top system--the box that will sit on      
top of your video set--is the client. The computer system that stores and       
transmits a digital video image into your home is the server.                   

Digital is working with U S West, NYNEX and USA Video to provide Alpha AXP      
servers to implement video-on-demand so television viewers can see the          
program or movie they want, when they want it.                                  

But there's more to the Information Superhighway than the client and server     
systems that will use the network. In addition to fiber-optic, coaxial,         
wireless and microwave communications, specialized network operating systems,   
hubs, bridges, repeaters, routers and high-speed digital switches are needed    
to manage traffic and link local and wide area networks together. Then          
there's the matter of security, keeping intruders out of your internal          
network and protecting confidential and proprietary information.                

Digital is providing hardware as well as networking and security software to    
both corporate customers and communication service providers. We are working    
with Australia's Optus Communications to build operational support systems--    
the network operating, billing and administrative systems needed to control     
and manage a fully digital, transcontinental telecommunications network.        

We're providing Alpha AXP systems and high-speed FDDI switches to Glaxo         
Research and Development in Stevenage, England, to support growing network      
traffic as they develop, test and market new drugs in both Europe and the       
Americas.                                                                       

And we're working with virtually every one of our networking customers to       
help them access, move and manage information both within the enterprise and    
across the Information Superhighway so they can gain a competitive advantage.   

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Networks                                                                        
Stops Along the Highway                                                         

[Photograph of busy highway interchange]                                        

"Without networking you wouldn't have open computing environments where         
computers work together--where you can exchange ideas and data over the         
Internet. Digital builds the switches, routers, hubs and adapters around        
which customers can build open networks utilizing ATM, FDDI, Ethernet, Token    
Ring and other communications technologies."                                    

--Dr. Laurence G. Walker                                                      
Vice President                                                            
Network Product Business                                                  
Digital Equipment Corporation                                             

"The Information Superhighway isn't going to mean much unless you have          
secondary roads to support local traffic. Here at Iowa State, we're working     
with Digital to build the open, high-speed multivendor network needed to        
support the academic and research programs of a large university."              

--Dr. George Strawn, Director of the Computation Center                     
Iowa State University of Science and Technology                         

Iowa State University: Building a science and research infrastructure around    
Alpha AXP systems. The Internet was originally set up to support government     
and academic research. It created a "virtual campus" where students and         
scientists at one institution could work with their peers, access data and      
use computer resources at other institutions around the world.                  

Iowa State University of Science and Technology has been part of the Internet   
since 1985. Today, working with Digital, the University is developing the       
local infrastructure needed to support a multivendor computing environment.     

Using a Digital FDDI network and DECathena software, Iowa State's network now   
includes more than 800 client and 50 server workstations located in 45          
buildings across the campus.                                                    

Alpha AXP servers are a critical component because the network has to support   
projects that involve massive databases. With 64-bit addressing, Iowa State's   
Alpha AXP servers can manage databases and perform computations that used to    
require mainframes and supercomputers.                                          

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Times Mirror: Linking businesses in a citywide multimedia LAN using an          
existing cable TV network. In a unique pilot program, Digital, Times Mirror     
Cable Television and Arizona State University joined together to provide an     
interactive, multimedia commerce network for companies in the Phoenix area.     

Times Mirror Cable Television is providing the infrastructure; Arizona State    
University, the demonstration facility and Internet access. Digital Alpha AXP   
systems control the network, while a ChannelWorks bridge links existing         
computers and LANs together. Digital is also providing the network management   
software and services needed to convert the existing cable system into a        
two-way interactive, high-speed network to support video, voice and data        
applications through-out the metropolitan area.                                 

By creating an open, broadband network, local businesses are able to work       
closely together. For example, McDonnell Douglas Helicopter Systems and         
Allied Signal Engine Division are now able to work with key local suppliers     
to dramatically reduce the time it takes to develop and manufacture new         
components.                                                                     

Times Mirror Cable Television and Digital demonstrated the capabilities of      
the Electronic Commerce Network (ECNet) for President Clinton and Vice          
President Gore at the White House.                                              

The network supports concurrent computer-aided design programs where            
engineers at prime and sub-contractor sites can view and revise engineering     
drawings simultaneously. It supports desktop videoconferencing and "white       
boarding" so users at different sites see and annotate the same document at     
the same time.                                                                  

The Electronic Commerce Network is typical of the new cable services based on   
Digital's ChannelWorks technology that are being built in the Americas,         
Europe, Asia and the Pacific Rim.                                               

"While everyone talks about the Information Superhighway, we've built an        
on-ramp right here in Phoenix. Local companies are using it to speed product    
development and intercompany communications. Large manufacturing companies      
and their suppliers are gaining the edge they need to compete in global         
markets."                                                                       

--Larry W. Wangberg                                                         
President and Chief Executive Officer                                     
Times Mirror Cable Television and                                         
Chairman, National Cable Television Association                           

"The really great thing about the Electronic Commerce Network (ECNet) is that   
we didn't have to invent whole new technologies to make it work, rather we      
integrated well-developed technologies to support new applications so local     
businesses could work closely together."                                        

--Darel Eschbach, Executive Director                                          
Telecommunications Services                                               
Arizona State University                                                  

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Services                                                                        
Supporting Open Client/Server Environments                                      

[Two photographs:  Top photograph of several clocks each showing time in a      
different time zone.  Bottom photograph of two men sitting on chairs and        
holding clipboards and one woman standing.  The caption relating to both        
photographs reads "SERVICES  Suporting Open/Server Environments".]              

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A portfolio of services--Services account for nearly 50 percent of Digital's    
business. Digital professionals like Art Bolton, Yvonne Wong, and Randy         
Stotler provide systems and network integration services and support            
customers with multivendor computing environments in thousands of customer      
installations worldwide.                                                        

"Client/server environments are, by their very nature, multivendor. Because     
of our networking leadership and extensive experience supporting multivendor    
environments, Digital is uniquely qualified to be a leader in supporting        
customers and their IT investments, today, and as they evolve to                
client/server computing."                                                       

--John Rando, Vice President                                                
Multivendor Customer Services                                           
Digital Equipment Corporation                                           

Practically every computer company sells hardware or software for network and   
client/server environments. Most only support the equipment they sell.          
Digital is different. We provide the most comprehensive portfolio of systems    
and network integration and multivendor customer services in the industry.      

We will take complete responsibility for major projects, from initial           
feasibility studies all the way through implementation and management.          

This requires more than just an understanding of technology. Implementing a     
new system changes the way people work. That's why--in addition to providing    
multivendor systems and network integration--we work closely and have           
strategic alliances with independent consultants so together we can address     
the business as well as the technical issues facing our customers.              

And, as more and more customers adopt client/server solutions and build         
enterprise-wide networks, gaps in service coverage and service quality          
inevitably occur. Digital is filling these gaps. We provide multivendor         
services, technical systems and network integration services, and customer      
training in more than 100 countries to support both local and worldwide         
enterprises.                                                                    

Today, we are the only service provider prepared to take ownership of all the   
support issues found in multivendor environments. We run help desks and train   
users. We pull wire and install hardware and software upgrades. And we          
provide a full range of system management services including asset management   
and remote and on-site performance analysis and tuning. As testimony to our     
open client/server support capabilities, Digital won InfoWorld magazine's       
1994 award for best client/server technical support.                            

Digital supports hardware and software from IBM, Hewlett-Packard, Olivetti,     
Apple, Compaq, Sun, Microsoft, WordPerfect, Oracle, NeXT and other companies.   
In many cases, hardware and software companies rely on Digital to support       
their products. For example, Digital has formal alliances with Dell,            
Microsoft, Novell, National Semiconductor, British Telecom (BT) and other       
computer, component and telecommunications companies to support their           
customers in key markets around the world.                                      

Professional and multivendor customer services represent a $6-billion-a-year    
business for Digital with systems and network integration accounting for more   
than one-third of the total. Today, Digital is one of the four largest          
systems integration companies in the world and is ranked second by both         
International Data Corporation and Computer Reseller News magazine.             

Offering both systems integration and multivendor customer services, Digital    
has all the resources needed to help customers plan, design, implement,         
manage, maintain and support open client/server environments around the         
world.                                                                          

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Services                                                                        
Supporting the Customer 24 Hours a Day                                          

[Photograph of several clocks each showing time in a different time             
zone]                                                                         

"Our customers are looking for a business partner. They want to deal with a     
computer company that can provide systems and network integration and           
multivendor services. A company that can help them apply technology in ways     
that enhance productivity and protect current and future investments."          

--Enrico Pesatori, Vice President and General Manager                       
Computer Systems Division                                                 
Digital Equipment Corporation                                             

"Having a service partner who can handle everything from chip swaps to fixing   
laser printers is essential to keeping the Society's business running           
smoothly on any given day."                                                     

--Robert Jackson                                                              
Information Technology General Manager                                    
Yorkshire Building Society                                                

Yorkshire Building Society: Bringing operational simplicity to a multivendor    
network. The Yorkshire Building Society, with 136 branches throughout the       
United Kingdom, faced a problem that is shared by many customers with           
multivendor computing environments: Whom do you call when you have a problem?   

In all too many cases, the source of a problem is not easily identified. Is     
it a hardware or a software problem? Is it a problem with the local computer,   
with the local area network, or with a laser printer or networked file          
server?  It's a problem that's compounded when you have equipment from IBM,     
Hewlett-Packard, Philips, Olivetti, Dell and other computer manufacturers       
running software created by dozens of different companies.                      

Yorkshire Building Society found the simple answer: Call Digital. We provide    
the multivendor customer services that they need to keep everything running,    
in every office.                                                                

Having a single service organization provides operational simplicity while      
reducing costs and eliminating the delays that often occur when it's not        
clear who owns a particular problem.                                            

And when many customer branches lack on-site expertise, it is particularly      
important that they be able to work with someone they know and trust.           

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Tokyo Digital Phone:                                                            
Building the business support system for a new cellular network                 

In April 1992, Digital was called in by Tokyo Digital Phone (TDP) and its       
partners in the DPG (Digital Phone Group)--CDP (Central DP) and KDP (Kansai     
DP)--to build a business support system costing approximately 3 billion yen     
($29 million) for a new cellular telephone company entering the highly          
competitive Tokyo/Nagoya/Osaka market.                                          

In April 1994, when the new network went into operation, the business support   
system was up and running.                                                      

BACUSS--the Billing and Accounting Customer Support System--is a multivendor,   
client/server system that interfaces directly with DPG's switching system to    
handle leads, customer orders, customer care, inventory, billing, and account   
and agent management.                                                           

TDP and Digital recognized that client/server computing would provide a         
competitive advantage because it is scalable and allows the cost-efficient      
distribution of computing resources while making information readily            
available where and as needed.                                                  

DPG plans to license BACUSS to other cellular telephone companies looking for   
a complete customer support system.                                             

In addition to undertaking major systems integration projects like BACUSS,      
Digital provides strategic and operations management services to help its       
clients move to and function effectively within client/server environments.     

"We see Digital as a true business partner rather than just a company we        
contracted with for specific products and services. And having a close          
relationship with the people you do business with is the key to staying         
on-schedule and on-budget."                                                     

--Yosai Hayashi, Managing Director                                            
Tokyo Digital Phone Co., Ltd.                                             

Rate of growth 1994                                                             

Digital is a leading provider of multivendor customer services.                 

Multivendor Support    Desktop Support     PC Integration                     

30%                 30%                 50%                     

Source: Deloitte & Touche LLP                                                 

[Bar chart is superimposed over a map of the world]                           

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Teamwork                                                                        
Digital's Culture and Values                                                    

[Photograph of front cover of Digital's 1994 Environmental Health & Safety      
Annual Report, showing the globe and captioned Earth Vision]                  

As individuals and as a company, we have a tradition of achievement in          
protecting the environment and in ensuring the health and safety of our         
fellow employees. If you'd like a copy of our Environmental, Health and         
Safety Annual Report, write to:                                                 

Digital Equipment Corporation                                               
Environmental, Health and Safety                                            
111 Powdermill Road                                                         
(MSO2-3/B16)                                                                
Maynard, Massachusetts                                                      
01754-1418                                                                  

"Technology alone does not guarantee success. The challenge is to apply         
technology to the problems facing the customer and the community. As a          
company, and as individuals, we welcome that challenge."                        

--Robert B. Palmer, President and Chief Executive Officer                     
Digital Equipment Corporation                                             

Throughout this annual report, we have focused on the importance of teamwork.   
Open client/server computing is not something that we implement by ourselves;   
it is a concept that can be implemented only in partnership with others.        

Teamwork is based on trust. That means being honest in dealing with our         
customers and business partners as well as with each other. It means respect    
for the individual. It means that we are accountable--as individuals and as a   
company--for meeting our commitments to our customers and business partners.    

These core values create an environment that encourages innovation and          
involvement. Digital is recognized as a leader in the development of managed    
healthcare programs for its employees. And Digital was one of the first         
companies in the country to establish an HIV/AIDS program office to educate     
its employees.                                                                  

We recognize our responsibility for the environment. We eliminated CFCs and     
other ozone-depleting substances from our products, processes and services.     
We introduced energy-efficient PCs. And we integrated environmental             
compatibility features into our new video terminals and have a program to       
extend environmental compatibility to other products, media, documentation      
and packaging.                                                                  

These are not isolated activities. In every country where we do business, we    
try to make a difference. Digital employees volunteer their time and skills     
to schools, hospitals and other community organizations. At the same time,      
the company has a formal Corporate Contributions Program as well as an          
External Research Program that supports projects at 125 colleges and            
universities around the world.                                                  

We believe that computer technology can help make this a better world, and      
that as individuals and as a company we have a contribution to make.            

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Financial Statements                                                          

Eleven-Year Financial Summary                              26                 
Management's Discussion and Analysis of                                       
Results of Operations and Financial Condition              28                 
Report of Management                                       34                 
Report of Independent Accountants                          35                 
Consolidated Statements of Operations                      36                 
Consolidated Balance Sheets                                37                 
Consolidated Statements of Cash Flows                      38                 
Consolidated Statements of Stockholders' Equity            39                 

Notes to Consolidated Financial Statements                                    

Note A - Significant Accounting Policies                   40                 
Note B - Geographic Operations                             41                 
Note C - Income Taxes                                      43                 
Note D - Capitalized Computer                                                 
Software Development Costs                        44        
Note E - Restructuring Actions                             45                 
Note F - Debt                                              46                 
Note G - Postretirement and Other                                             
Postemployment Benefits                           46        
Note H - Commitments and Contingencies                     49                 
Note I - Other Financial Instruments                       50                 
Note J - Investing Activities                              50                 
Note K - Stock Plans                                       51                 
Note L - Stockholders' Equity                              52                 
Note M - Subsequent Event                                  53                 

Supplementary Information                                                     

Quarterly Financial Data                                   54                 
Stock Information                                          54                 
Officers and Management                                    55                 
Directors                                                  56                 
Committees of the Board                                    57                 
Corporate Consulting Engineers                             57                 
Headquarters                                               58                 
Investor Information                                       59                 
Customer Inquiries                                         60                 

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                                                        · Enlarge/Download Table
                                                                                                 


 Eleven-Year Financial Summary                                                                  
 (dollars in millions except per share data                                                     
  and stock prices)                                         1994       1993      1992     1991  
________________________________________________________________________________________________
                                                                                                
Revenues                                                                                        
Product sales                                            $ 7,191   $ 7,588   $ 7,696   $ 8,299  
Service and other revenues                                 6,260     6,783     6,235     5,612  
                                                          ______________________________________
Total operating revenues                                  13,451    14,371    13,931    13,911  
                                                          ______________________________________
Costs and Expenses                                                                              
Cost of product sales, service and other revenues          8,912     8,631     8,132     7,278  
Research and engineering expenses                          1,301     1,530     1,754     1,649  
Selling, general and administrative expenses 1             5,234     4,447     6,181     5,572  
                                                          ______________________________________
Operating income/(loss)                                   (1,996)     (237)   (2,136)     (588) 
                                                          ______________________________________
Net interest income/(expense)                                (24)       13        57        68  
                                                          ______________________________________
Income/(loss) before income taxes and cumulative                                                
effect of change in accounting principle                  (2,020)     (224)   (2,078)     (520) 
                                                          ______________________________________

Provision for income taxes                                    85        27       232        97  
                                                          ______________________________________
Net income/(loss)2                                       $(2,156)  $  (251)  $(2,796)  $  (617) 
                                                         _______________________________________
Net income/(loss) applicable per common share 2,3,4      $(15.80)  $ (1.93)  $(22.39)  $ (5.08) 
                                                         _______________________________________
Weighted average shares outstanding (in millions)            137       130       125       122  
                                                         _______________________________________

Financial Position                                                                              
Inventories                                              $ 2,064   $ 1,755   $ 1,614   $ 1,595  
Accounts receivable, net of allowance                    $ 3,319   $ 3,020   $ 3,594   $ 3,317  
Net property, plant and equipment                        $ 3,129   $ 3,178   $ 3,570   $ 3,778  
Total assets                                             $10,580   $10,950   $11,284   $11,875  
Long-term debt                                           $ 1,011   $ 1,018   $    42   $   150  
Stockholders' equity                                     $ 3,280   $ 4,885   $ 4,931   $ 7,624  
Stockholders' equity per common share 3                  $ 20.24   $ 36.19   $ 38.58   $ 61.18  

General Information and Ratios                                                                  
Current ratio                                              1.4:1     1.8:1     1.4:1     2.0:1  
Quick ratio                                                 .9:1     1.2:1     1.0:1     1.4:1  
Working capital                                          $ 1,832   $ 2,964   $ 2,015   $ 3,777  
Investments in property, plant and equipment             $   682   $   529   $   710   $   738  
Depreciation                                             $   574   $   699   $   733   $   772  
Total debt as a percentage of total debt plus equity        24.1%     17.5%      1.8%      2.2% 
Operating income/(loss) as a percentage of revenues        (14.8)%    (1.7)%   (15.3)%    (4.2)%
Income/(loss) before income taxes as a                                                          
percentage of revenues                                     (15.0)%    (1.6)%   (14.9)%    (3.7)%
Effective tax rate                                           4.2%     12.0%     11.2%     18.8% 
Net income/(loss) as a percentage of revenues              (16.0)%    (1.7)%   (20.1)%    (4.4)%
Net income/(loss) as a percentage of average                                                    
stockholders' equity                                       (52.8)%    (5.1)%   (44.5)%    (7.8)%
Net income/(loss) as a percentage of average                                                    
total assets                                               (20.0)%    (2.3)%   (24.1)%    (5.2)%
Number of days sales of accounts receivable                                                     
outstanding                                                   76        69        83        76  
Inventory turns                                              4.7       5.1       5.1       4.6  
Number of employees at year-end--regular                  77,800    89,900   107,900   115,100  
Number of employees at year-end--other                     5,000     4,300     5,900     5,900  
Common stockholders at year-end                           77,722    86,611    99,644    98,023  
Common stock yearly high and low sales prices            $ 43-18   $ 49-30   $ 72-33   $ 87-45  
______________________________________________________________________________________________  
                                                                               
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Eleven-Year Financial Summary (cont.)                                                          
(dollars in millions except per share data                                                     
 and stock prices)                                         1990      1989      1988      1987  
_______________________________________________________________________________________________
                                                                                               
Revenues                                                                                       
Product sales                                           $  8,146  $  8,190  $  7,541  $  6,254 
Service and other revenues                                 4,797     4,552     3,934     3,135 
                                                        _______________________________________
Total operating revenues                                  12,943    12,742    11,475     9,389 
                                                        _______________________________________
Costs and Expenses                                                                             
Cost of product sales, service and other revenues          6,795     6,242     5,468     4,514 
Research and engineering expenses                          1,614     1,525     1,306     1,010 
Selling, general and administrative expenses 1             4,521     3,639     3,066     2,253 
                                                        _______________________________________
Operating income/(loss)                                       13     1,336     1,635     1,612 
                                                        _______________________________________
Net interest income/(expense)                                111        85       106        77 
                                                        _______________________________________
Income/(loss) before income taxes and cumulative                                               
effect of change in accounting principle                     124     1,421     1,741     1,689 
                                                        _______________________________________
Provision for income taxes                                    50       348       435       552 
                                                        _______________________________________
Net income/(loss)2                                      $     74  $  1,073  $  1,306  $  1,137 
                                                        _______________________________________
Net income/(loss) applicable per common share 2,3,4     $    .59  $   8.45  $   9.90  $   8.53 
                                                        _______________________________________
Weighted average shares outstanding (in millions)            125       127       132       133 
                                                        _______________________________________

Financial Position                                                                             
Inventories                                             $  1,538  $  1,638  $  1,575  $  1,453 
Accounts receivable, net of allowance                   $  3,207  $  2,965  $  2,592  $  2,312 
Net property, plant and equipment                       $  3,868  $  3,646  $  3,095  $  2,127 
Total assets                                            $ 11,655  $ 10,668  $ 10,112  $  8,407 
Long-term debt                                          $    150  $    136  $    124  $    269 
Stockholders' equity                                    $  8,182  $  8,036  $  7,510  $  6,294 
Stockholders' equity per common share 3                 $  66.76  $  66.12  $  59.47  $  49.87 

General Information and Ratios                                                                 
Current ratio                                              2.3:1     2.9:1     2.9:1     3.4:1 
Quick ratio                                                1.6:1     1.9:1     2.0:1     2.4:1 
Working capital                                         $  4,332  $  4,501  $  4,516  $  4,377 
Investments in property, plant and equipment            $  1,028  $  1,223  $  1,518  $    748 
Depreciation                                            $    759  $    659  $    516  $    435 
Total debt as a percentage of total debt plus equity         2.0%      2.0%      3.6%      4.2%
Operating income/(loss) as a percentage of revenues           .1%     10.5%     14.2%     17.2%
Income/(loss) before income taxes as a percentage                                              
of revenues                                                  1.0%     11.2%     15.2%     18.0%
Effective tax rate                                          40.0%     24.5%     25.0%     32.7%
Net income/(loss) as a percentage of revenues                 .6%      8.4%     11.4%     12.1%
Net income/(loss) as a percentage of average                                                   
stockholders' equity                                          .9%     13.8%     18.9%     18.9%
Net income/(loss) as a percentage of average                                                   
total assets                                                  .7%     10.3%     14.1%     14.6%
Number of days sales of accounts receivable outstanding       86        76        75        78 
Inventory turns                                              4.3       3.9       3.6       3.4 
Number of employees at year-end--regular                 116,900   118,400   113,900   103,000 
Number of employees at year-end--other                     7,100     7,400     7,600     7,500 
Common stockholders at year-end                           92,934    99,084   103,162    99,379 
Common stock yearly high and low sales prices            $103-70   $122-86   $199-99   $174-82 

                                                                               
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Eleven-Year Financial Summary (cont.)                                                
(dollars in millions except per share data                                           
and stock prices)                                           1986      1985      1984 
_____________________________________________________________________________________
                                                                                     
Revenues                                                                             
Product sales                                            $ 5,103   $ 4,530   $ 3,804 
Service and other revenues                                 2,487     2,156     1,780 
                                                         ____________________________
Total operating revenues                                   7,590     6,686     5,584 
                                                         ____________________________
Costs and Expenses                                                                   
Cost of product sales, service and other revenues          4,282     4,087     3,379 
Research and engineering expenses                            814       717       631 
Selling, general and administrative expenses 1             1,665     1,432     1,179 
                                                         ____________________________
Operating income/(loss)                                      829       450       395 
                                                         ____________________________
Net interest income/(expense)                                 28      (19)         6 
                                                         ____________________________
Income/(loss) before income taxes and cumulative                                     
effect of change in accounting principle                     857       431       401 
                                                         ____________________________
Provision for income taxes                                   240     (16)5        72 
                                                         ____________________________
Net income/(loss)2                                       $   617   $   447   $   329 
                                                         ____________________________
Net income/(loss) applicable per common share 2,3,4      $  4.81   $  3.71   $  2.87 
                                                         ____________________________
Weighted average shares outstanding (in millions)            131       124       115 
                                                         ____________________________
Financial Position                                                                   
Inventories                                              $ 1,200   $ 1,756   $ 1,852 
Accounts receivable, net of allowance                    $ 1,903   $ 1,539   $ 1,527 
Net property, plant and equipment                        $ 1,867   $ 1,731   $ 1,511 
Total assets                                             $ 7,173   $ 6,369   $ 5,593 
Long-term debt                                           $   333   $   837   $   441 
Stockholders' equity                                     $ 5,728   $ 4,555   $ 3,979 
Stockholders' equity per common share 3                  $ 44.54   $ 38.43   $ 34.42 

General Information and Ratios                                                       
Current ratio                                              4.9:1     4.9:1     3.8:1 
Quick ratio                                                3.5:1     2.8:1     1.9:1 
Working capital                                          $ 4,223   $ 3,694   $ 3,001 
Investments in property, plant and equipment             $   564   $   572   $   452 
Depreciation                                             $   384   $   315   $   253 
Total debt as a percentage of total debt plus equity         5.9%     15.7%     10.3%
Operating income/(loss) as a percentage of revenues         10.9%      6.7%      7.1%
Income/(loss) before income taxes as a percentage                                    
of revenues                                                 11.3%      6.4%      7.2%
Effective tax rate                                          28.0%     (3.7)%5   18.0%
Net income/(loss) as a percentage of revenues                8.1%      6.7%      5.9%
Net income/(loss) as a percentage of average                                         
stockholders' equity                                        12.0%     10.5%      8.7%
Net income/(loss) as a percentage of average                                         
total assets                                                 9.1%      7.5%      6.5%
Number of days sales of accounts receivable outstanding       79        75        83 
Inventory turns                                              2.9       2.3       2.1 
Number of employees at year-end--regular                  88,300    83,000    79,800 
Number of employees at year-end--other                     6,400     6,000     5,800 
Common stockholders at year-end                           76,860    68,810    44,389 
Common stock yearly high and low sales prices            $ 94-46   $ 63-39   $ 61-33 
_____________________________________________________________________________________
<FN>                                                                                 
 1 Includes restructuring charges of $1,206M in 1994, $1,500M in 1992, $1,100M       
   in 1991 and $550M in 1990. Includes reduction in carrying value of                
   intangible assets of $310M in 1994.                                               

 2 In fiscal year 1994, net loss and net loss per share include a one-time           
   charge of $71M, or $.51 per share, and a one-time benefit of $20M, or             
   $.14 per share, for the cumulative effect of changes in accounting                
   principles.  In fiscal year 1992, net loss and net loss per share include         
   the cumulative effect of change in accounting principle of $485M and $3.89,       
   respectively.                                                                     

 3 Per share data adjusted to reflect two-for-one stock split in May 1986.           

 4 See Note A of Notes to Consolidated Financial Statements.                         

 5 Includes elimination of DISC taxes of $63M accrued prior to 1984.                 


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 Management's Discussion and Analysis of                                                            
 Results of Operations and Financial Condition                                                      

 Income and Expense Items as a                                                                      
 Percentage of Total Operating Revenues (a)                                      Percentage Changes 

___________________________________________________________________________________________________ 
     1992    1993    1994    Income and Expense Items                    1993-94  1992-93   1991-92 
___________________________________________________________________________________________________ 
                                                                                                    
     55.2%    52.8%   53.5%  Product sales                                  (5)%     (1)%      (7)% 
     44.8%    47.2%   46.5%  Service and other revenues                     (8)%       9%       11% 
 ___________________________________________________________________________________________________
    100.0%   100.0%  100.0%  Total operating revenues                       (6)%       3%       -   
 ___________________________________________________________________________________________________
     55.2%    58.8%   69.1%  Cost of product sales (b)                       11%       5%        9% 
     62.3%    61.4%   63.0%  Service expense and cost of other revenues (b) (5)%       7%       15% 
 ___________________________________________________________________________________________________
     58.4%    60.1%   66.3%  Total cost of operating revenues                 3%       6%       12% 
     12.6%    10.6%    9.7%  Research and engineering expenses             (15)%    (13)%        6% 
     33.6%    30.9%   29.9%  Selling, general and administrative expenses   (9)%     (5)%        5% 
     10.8%     -       9.0%  Restructuring charges                           NM    (100)%       36% 
 ___________________________________________________________________________________________________
    (15.3)%   (1.7)% (14.8)% Operating loss                                100+%    (89)%     100+% 
 ___________________________________________________________________________________________________
      0.7%      .4%     .3%  Interest income                               (23)%    (34)%     (15)% 
      0.3%      .4%     .5%  Interest expense                                44%      32%      (14)%
__________________________________________________________________________________________________  
                             Loss before income taxes and cumulative                                
   (14.9)%   (1.6)% (15.0)%  effect of change in accounting principle      100+%    (89)%     100+% 
 ___________________________________________________________________________________________________
      1.7%      .2%     .6%  Provision for income taxes                    100+%    (88)%     100+% 
 ___________________________________________________________________________________________________
                             Loss before cumulative effect of change                                
   (16.6)%   (1.7)% (15.6)%  in accounting principle                       100+%    (89)%     100+% 
 ___________________________________________________________________________________________________
                             Cumulative effect of change in accounting                              
      3.5%     -        .4%  principle, net of tax benefits                  NM    (100)%       -   
 ___________________________________________________________________________________________________
   (20.1)%   (1.7)% (16.0)%  Net loss                                      100+%    (91)%     100+% 
 ___________________________________________________________________________________________________
<FN>                                                                                                
 Note (a) Percentages of operating revenues may not be additive due to rounding.                    
 Note (b) Cost of product sales and service expense and cost of other revenues                      
          are shown as percentages of their related revenues.                                       
 NM - Not meaningful.                                                                               

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Revenues                                                                        

In fiscal 1994, total operating revenues, which were $13.5 billion, declined    
by $921 million or 6%, following an increase of $440 million or 3% in fiscal    
1993 and an increase of $20 million, or less than 1% in fiscal 1992.            

Non-U.S. revenues accounted for 62% of total operating revenues in fiscal       
1994, down from 64% in fiscal 1993 and 63% in fiscal 1992. European revenues    
declined to $5.9 billion in fiscal 1994, down from $7 billion and $6.8          
billion in fiscal 1993 and 1992, respectively. The decline in fiscal 1994       
European revenues was due principally to weak demand for the Corporation's      
products and services in that region, exacerbated by the difficulties           
associated with the Digital-Kienzle business acquired in 1991 (see Note J)      
and negative effects of foreign currency fluctuations, discussed below.         

Product sales for fiscal 1994 were $7.2 billion, or 53% of total operating      
revenues, compared with $7.6 billion, or 53% of revenues, and $7.7 billion,     
or 55% of revenues in fiscal 1993 and 1992, respectively. While the             
Corporation shipped substantially more computer systems in fiscal 1994 than     
in the previous fiscal year, product sales for fiscal 1994 declined compared    
with the prior two years, due principally to a continued shift in the mix of    
product sales toward low-end, lower-priced computer systems and away from the   
Corporation's proprietary mid-range products.                                   

In fiscal 1994, the Corporation experienced substantial growth in demand for    
Alpha AXP-based systems, particularly workstations, and for Intel-based         
personal computer products, as well as certain storage and component            
products. Alpha AXP systems revenue represented approximately 13% of fiscal     
1994 product sales, up from 3% for fiscal 1993. Revenues from the sale of       
Intel-based personal computers represented 19% of fiscal 1994 product sales,    
up from 9% for fiscal 1993. VAX systems revenues declined from 34% of product   
sales in fiscal 1993 to 19% in fiscal 1994, as the Corporation is in the        
midst of a major product transition. In the fourth quarter of fiscal 1994,      
revenues from the sale of Alpha AXP systems exceeded revenues from the sale     
of VAX systems for the first time.                                              

In fiscal 1994, service and other revenues totaled $6.3 billion, or 47% of      
total operating revenues, compared with $6.8 billion, or 47% of total           
operating revenues, and $6.2 billion, or 45% of total operating revenues, for   
fiscal 1993 and 1992, respectively. Service revenues declined by $524 million   
or 8% in fiscal 1994, following increases of 9% and 11% in fiscal 1993 and      
1992, respectively.                                                             

The decline in service revenues for fiscal 1994 was due to several factors,     
including lower levels of revenue from the Corporation's VAX systems            
maintenance business, greater reliability of and lower maintenance revenue      
associated with the Corporation's newer, lower-priced products, and increased   
competition in the maintenance business. In addition, revenues from systems     
integration and consulting services were essentially unchanged from fiscal      
1993, as the Corporation became more selective in pursuing systems              
integration and other consulting opportunities. Service revenue associated      
with the maintenance of other vendors' products grew in fiscal 1994,            
partially offsetting the declines noted above. The Corporation expects the      
market trends affecting service revenues from maintenance of VAX systems to     
continue over the next year.                                                    

Movements in currency exchange rates are one of many competitive, industry      
and economic factors which affect the Corporation's operating results. The      
Corporation does business in more than 100 countries in major and emerging      
markets. Revenues and costs in non-U.S. operations, including certain product   
costs, are denominated in applicable local currencies. While the effects of     
foreign currency translation for a fiscal period are included in applicable     
revenue and expense categories, they are difficult to quantify precisely        
because the Corporation responds to movements in currency exchange rates        
through pricing, expense, sourcing or other management actions, as market       
conditions permit. During fiscal 1994 and prior periods, the Corporation        
entered into foreign exchange contracts covering most of its net monetary       
assets, liabilities and firm commitments, with maturities which generally did   
not exceed six months, to increase the predictability of the rate at which      
non-U.S. revenues were translated into U.S. dollars. During fiscal 1994, the    
net effect of foreign currency translation and gains and losses on foreign      
exchange contracts was negative compared with fiscal 1993, whereas the net      
effect in fiscal 1993 compared with fiscal 1992 was positive. (See Notes A      
and I.)                                                                         

Total Operating Revenues                                                    
Year                                                      $ Millions        
____________________________________________________________________        
94     *********************************************           13451        
+++++++++++++++++++++  6260                                   
93     **************************************************      14371        
+++++++++++++++++++++++ 6783                                  
92     ************************************************        13931        
++++++++++++++++++++ 6235                                     
91     ***********************************************         13911        
++++++++++++++++ 5612                                         
90     ******************************************              12943        
+++++++++++++ 4797                                            
89     ****************************************                12742        
+++++++++++ 4552                                              
88     ***********************************                     11475        
++++++++++ 3934                                               
87     *****************************                            9389        
++++++++ 3135                                                 
86     *************************                                7590        
++++++ 2487                                                   
85     *********************                                    6686        
+++++ 2156                                                    
84     ***************                                          5584        
++++ 1780                                                     
____________________________________________________________________        

++++ Service and Other Revenues                               
**** Total Operating Revenues                                 

Non-United States Revenues                                                  
Year                                                      $ Millions        
____________________________________________________________________        
94    ***********************************************           8300        
93    *****************************************************     9164        
92    **************************************************        8799        
91    ************************************************          8380        
90    *******************************************               7281        
89    ****************************************                  7017        
88    *********************************                         5730        
87    ******************************                            4413        
86    *************************                                 3179        
85    *********************                                     2642        
84    ******************                                        1978        
____________________________________________________________________        

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Expenses and Profit Margins                                                     

The Corporation's total gross margin for fiscal 1994 was 34% of total           
operating revenues, compared with 40% of total operating revenues in fiscal     
1993 and 42% of total operating revenues in fiscal 1992.                        

The Corporation's gross margin on fiscal 1994 product sales was 31% of          
product sales, compared with 41% of product sales and 45% of product sales      
for fiscal 1993 and 1992, respectively. The decline in product gross margin     
was due to several factors, including pricing, a continued shift in the         
Corporation's mix of product sales toward low-end systems, which typically      
carry lower margins, and a business model shift toward greater use of           
indirect channels of distribution.                                              

Recognizing these competitive conditions and the need to lower manufacturing    
costs, the Corporation closed several manufacturing plants in fiscal 1994,      
and recently announced the closure of three more plants in fiscal 1995. The     
Corporation has implemented and will continue to refine organizational          
changes intended to increase accountability in order to improve profitability   
and facilitate the design and manufacture of products for volume markets.       

Gross margin on service revenues for fiscal 1994 was 37% of service revenues,   
compared with 39% of service revenues and 38% of service revenues in fiscal     
1993 and 1992, respectively. The two percentage point decline in service        
gross margin was due to a decline in revenue from the Corporation's             
higher-margin systems maintenance business, as described above.                 

Research and engineering (R&E) spending for fiscal 1994 totaled $1.3 billion    
(10% of total operating revenues), compared with $1.5 billion (11% of total     
operating revenues) in fiscal 1993 and $1.8 billion (13% of total operating     
revenues) in fiscal 1992. The decrease in R&E expenses was due to several       
factors, including ongoing actions to eliminate redundant engineering efforts   
and streamline product offerings, which resulted in a reduction in employee     
population. The Corporation's R&E investment program is focused on              
maintaining a strong, consistently market-driven product set and on attaining   
and sustaining technology leadership in selected areas.                         

Fiscal 1994 selling, general and administrative (SG&A) expenses were $4.0       
billion (30% of total operating revenues) compared with $4.4 billion (31% of    
total operating revenues) and $4.7 billion (34% of total operating revenues)    
for fiscal 1993 and 1992, respectively. Included in SG&A expenses for fiscal    
1994 were $310 million of non-cash write-offs and write-downs associated with   
intangible assets. (See Note J.) The decrease in SG&A expenses in fiscal 1994   
was due principally to reductions in employee population, as well as            
reductions in other overhead costs.                                             

Research and Engineering                                                      

Year                                                     $ Millions           
___________________________________________________________________           
94  ***************************************                    1301           
93  **********************************************             1530           
92  ******************************************************     1754           
91  ***************************************************        1649           
90  *************************************************          1614           
89  **********************************************             1525           
88  ****************************************                   1306           
87  ********************************                           1010           
86  **************************                                  814           
85  ***********************                                     717           
84  *********************                                       631           
___________________________________________________________________           

Regular Employee Population                                                   
Year                                                      Thousands           
___________________________________________________________________           
94  *************************                                    78           
93  ***********************************                          90           
92  ******************************************                  108           
91  **********************************************              115           
90  ***********************************************             117           
89  ************************************************            118           
88  **********************************************              114           
87  ****************************************                    103           
86  *********************************                            88           
85  ******************************                               83           
84  ****************************                                 80           
___________________________________________________________________           

While expenses continue to decline, the Corporation's cost structure is still   
too high for the level and mix of total operating revenues. As a result, at     
the end of fiscal 1994 the Corporation approved additional restructuring        
actions.                                                                        

In the fourth quarter of fiscal 1994,the Corporation accrued restructuring      
costs of $1.2 billion to cover actions taken in the fourth quarter and          
planned actions for fiscal 1995 and 1996. Approximately $679 million of this    
charge was to cover the cost of employee separations to be completed by the     
end of fiscal 1995. The remaining $527 million was for facility closures and    
related costs. The cost of employee separations includes termination benefits   
for approximately 20,000 employees. A portion of these employee separations     
occurred near the end of the fourth quarter of fiscal 1994 and the remainder    
will occur by the end of fiscal 1995. These employees are located principally   
in the United States and Europe.                                                

Planned restructuring actions for fiscal 1995 include employee separations      
across most organizations and functions, with approximately 40% to come from    
sales and marketing, as the Corporation sells more products and services        
through indirect channels of distribution. The planned facility closures        
cover 10 million square feet of office and manufacturing space, principally     
in the United States and Europe. Cash expenditures associated with these        
restructuring actions are expected to be approximately $580 million in the      
first half of fiscal 1995, $420 million for the remainder of fiscal 1995 and    
$240 million related to facility closures beyond fiscal 1995. These actions     
do not include workforce or facility reductions that may result from            
divestments.                                                                    

See Note E for a description of the Corporation's restructuring actions and     
related costs.                                                                  

As a result of actions associated with restructuring charges to operations in   
fiscal 1992, 1991 and 1990, the Corporation has eliminated an estimated $2.8    
billion of annualized operating expenses, including approximately $2.5          
billion of annual cash expense related to workforce reductions and              
approximately $335 million related to facility operating costs. When            
completed, the actions associated with the restructuring charge in fiscal       
1994 are expected to result in the elimination of additional annualized         
operating expenses of approximately $1.8 billion, including $1.5 billion of     
cash expense.                                                                   

Total employee population decreased by 11,400 during fiscal 1994. The           
Corporation had approximately 77,800, 89,900 and 107,900 regular employees at   
the end of fiscal 1994, 1993 and 1992, respectively, and an additional 5,000,   
4,300 and 5,900 temporary and contract workers at the end of fiscal 1994,       
1993 and 1992, respectively.                                                    

Interest income in fiscal 1994 decreased to $49 million from $64 million in     
fiscal 1993 and $96 million in fiscal 1992, reflecting lower interest rates     
and lower average cash balances. Interest expense increased to $73 million      
from $51 million in fiscal 1993 and $39 million in fiscal 1992. The increase    
in fiscal 1994 interest expense was due principally to the full year's          
interest expense on $1 billion of long-term debt issued during fiscal 1993.     
Interest expense for fiscal 1994 included the differential received on          
interest rate swap agreements entered into in the first quarter of fiscal       
1994, relating to $750 million of long-term debt.                               

In fiscal 1994, the Corporation's income tax expense was $85 million on a       
pre-tax loss of $2.0 billion. (See Note C.)  In fiscal 1993, the                
Corporation's income tax expense was $27 million on a pre-tax loss of $224      
million. Income tax expense reflects several factors, including income taxes    
provided for profitable non-U.S. operations and an inability to recognize       
currently U.S. and certain non-U.S. tax benefits from operating losses. In      
addition, fiscal 1994 income tax expense includes a $70 million reduction in    
net deferred tax assets associated with non-U.S. operations.                    

The Corporation adopted Statement of Financial Accounting Standards (SFAS)      
No. 109 - Accounting for Income Taxes, effective July 4, 1993. The Corporation  
had previously accounted for income taxes under Accounting Principles Board     
Opinion No. 11. In the first quarter of fiscal year 1994, the Corporation       
recorded a one-time benefit of $20 million, or $.14 per share, for the          
recognition of previously unrecognized tax benefits. There is no cash flow      
impact from the adoption of SFAS No. 109. The standard was adopted on a         
prospective basis and amounts presented for prior years were not restated.      
(See Note C.)                                                                   

In the fourth quarter of fiscal 1994, the Corporation adopted SFAS No. 112 -    
Employers' Accounting for Postemployment Benefits, effective as of the          
beginning of the fiscal year. SFAS No. 112 requires accrual accounting of       
benefits provided to former or inactive employees after employment but before   
retirement. These benefits include, but are not limited to, salary              
continuation, supplemental unemployment benefits, severance benefits,           
disability-related benefits, and continuation of benefits such as health care   
benefits and life insurance coverage. The cumulative effect of adopting this    
standard resulted in a one-time charge to income of $71 million (the            
"transition obligation"), or $.51 per common share. This transition             
obligation represents principally the cost of providing medical, dental and     
life insurance benefits to individuals in the U.S. currently on long-term       
disability during the estimated remaining period in which they will receive     
disability benefits. The annual expense under the new standard, exclusive of    
the transition obligation, is not significantly different than the annual       
expense under the Corporation's former practice. There is no cash flow impact   
from the adoption of SFAS No. 112. The first quarter of fiscal 1994 has been    
restated to reflect the change in accounting principle. (See Supplementary      
Information, Quarterly Financial Data.) Prior years' consolidated financial     
statements have not been restated to reflect the adoption of SFAS No. 112.      

In November 1992, the Financial Accounting Standards Board issued SFAS No.      
115 - Accounting for Certain Investments in Debt and Equity Securities. SFAS    
No. 115 expands the use of fair value accounting for certain debt and equity    
securities. The Corporation will adopt SFAS No. 115 in the first quarter of     
fiscal 1995. At the end of fiscal 1994, the Corporation had unrecognized        
gains on long-term investments of approximately $65 million that would be       
subject to SFAS No. 115 treatment.                                              

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Availability of Funds to Support Current and Future Operations and Spending     
for Operations                                                                  

Cash and cash equivalents totaled $1.2 billion, $1.6 billion and $1.3 billion   
at the end of fiscal 1994, 1993 and 1992, respectively.                         

Net cash used by operating activities was $375 million in fiscal 1994,          
compared with net cash generated of $47 million and $431 million in fiscal      
1993 and 1992, respectively. The $375 million net use of cash from operating    
activities in fiscal 1994 was due principally to restructuring activities,      
the net loss for the year and increased inventory levels in support of          
increased demand for Alpha AXP, personal computer and certain storage           
products. Net cash generated by operating activities in fiscal 1993 was         
principally the result of improved accounts receivable, offset by               
expenditures for restructuring activities, the net loss for the year and        
decreased accounts payable.                                                     

Net cash used for investing activities was $626 million, $884 million and       
$981 million in fiscal 1994, 1993 and 1992, respectively. Capital               
expenditures totaled $682 million in fiscal 1994, compared with $529 million    
and $710 million in fiscal 1993 and 1992, respectively. Capital expenditures    
in fiscal 1994 included $206 million toward the construction of and purchase    
of equipment for a new semiconductor fabrication facility in Hudson,            
Massachusetts. This project has a currently estimated total cost of $425        
million. Approximately $54 million of the remaining $91 million of unexpended   
costs on the Hudson project is expected to be spent in fiscal 1995. The         
Corporation expects total capital expenditures in fiscal 1995 to be less than   
$500 million.                                                                   

The Corporation disposed of property, plant and equipment and other assets in   
fiscal 1994, generating approximately $121 million in cash proceeds, compared   
with $68 million and $15 million in fiscal 1993 and 1992, respectively,         
principally as a result of restructuring activities. Subsequent to the end of   
the fiscal year, the Corporation and Quantum Corporation ("Quantum") signed     
an agreement providing for Quantum's purchase of a portion of the               
Corporation's storage business for $400 million. (See Note M.) The              
Corporation also sold its shares of the common stock of Ing. Olivetti & C.      
S.p.A. subsequent to the end of fiscal 1994 for approximately $148 million in   
cash. (See Note J.)                                                             

Net cash generated from financing activities was $538 million and $1.1          
billion in fiscal 1994 and 1993, respectively, and net cash used was $36        
million in fiscal 1992. The  principal financing activity in fiscal 1994 was    
the issuance and sale of preferred stock, as discussed below, generating net    
proceeds of $387 million. The Corporation also received $150 million during     
fiscal 1994 from the issuance of common stock under the Corporation's stock     
plans, compared with $196 million and $232 million in fiscal 1993 and 1992,     
respectively.                                                                   

On January 21, 1994, the Corporation filed with the Securities and Exchange     
Commission a shelf registration statement on Form S-3 under the Securities      
Act of 1933, as amended, covering the registration of debt securities,          
preferred stock, depositary shares, and warrants to purchase equity and debt    
securities, in an aggregate amount of $1.0 billion. In March 1994, the          
Corporation issued and sold 16,000,000 Depositary Shares under the shelf        
registration statement, each representing a one-fourth interest in a share of   
the Corporation's Series A 8 7/8% Cumulative Preferred Stock (the "Series A     
Preferred Stock"), par value $1.00 per share. Dividends on the Series A         
Preferred Stock accrue at the annual rate of 8 7/8% (approximately $36          
million in the aggregate). The Corporation paid approximately $2 million in     
dividends in the fourth quarter of fiscal 1994. In addition, prior to the end   
of fiscal 1994, the Corporation's  Board of Directors declared a quarterly      
dividend on the Series A Preferred Stock (totaling approximately $9             
million), which was paid on July 15, 1994. (See Note L.)                        

Total long-term debt was $1.0 billion at the end of fiscal 1994 and fiscal      
1993 and $91 million at the end of fiscal 1992. At the end of fiscal 1994,      
substantially all of the Corporation's available lines of credit were unused,   
including a three-year $750 million committed credit facility. Shortly after    
the end of the fiscal year, the Corporation terminated its credit facility,     
having replaced it as a source of liquidity with an accounts receivable         
securitization facility. (See Note F.)                                          

Investments in Property, Plant and Equipment                                  
Depreciation Expense                                                          

Year                                                        $ Millions        
______________________________________________________________________        
94     ***********************                                    682       
++++++++++++++++ 574                                          
93     ***************                                            529       
+++++++++++++++++++++++++ 699                                 
92     **************************                                 710       
++++++++++++++++++++++++++++ 733                              
91     *****************************                              738       
+++++++++++++++++++++++++++++++++ 772                         
90     *******************************************               1028       
+++++++++++++++++++++++++++++++ 759                           
89     **********************************************            1223       
++++++++++++++++++++++ 659                                    
88     ****************************************************      1518       
+++++++++++++ 516                                             
87     **********************************                         748       
++++++++++ 435                                                
86     ***************                                            564       
+++++++ 384                                                   
85     ****************                                           572       
++++++ 315                                                    
84     **********                                                 452       
+++++ 253                                                     
_____________________________________________________________________       

+++ Depreciation                                            
*** Investments                                             

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Availability of Funds to Support Current and Future Operations and Spending     
for Operations (continued)                                                      

The Corporation estimates that $1.0 billion of cash will be expended on         
planned restructuring activities in fiscal 1995, and an additional $240         
million beyond fiscal 1995. The Corporation intends to fund planned             
restructuring activities from operations, asset management efforts and          
existing cash, although if required, additional sources of cash are expected    
to be available, as discussed above.                                            

The Corporation's need for, cost of and access to funds are dependent on        
future operating results, as well as conditions external to the Corporation.    
The Corporation historically has maintained a conservative capital structure,   
and believes that its current cash position and its sources of and access to    
capital are adequate to support planned restructuring actions and operations.   

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Report of Management                                                            

The Corporation's management is responsible for the preparation of the          
financial statements in accordance with generally accepted accounting           
principles and for the integrity of all the financial data included in this     
annual report. In preparing the financial statements, management makes          
informed judgments and estimates of the expected effects of events and          
transactions that are currently being reported.                                 

Management maintains a system of internal accounting controls that is           
designed to provide reasonable assurance that assets are safeguarded and that   
transactions are executed and recorded in accordance with management's          
policies for conducting its business. This system includes policies which       
require adherence to ethical business standards and compliance with all laws    
to which the Corporation is subject. The internal controls process is           
continuously monitored by direct management review and an internal audit        
program under which periodic independent reviews are made.                      

The Corporation's independent public accountants annually review the            
accounting and control systems of the Corporation. Their audit includes a       
review of the internal control structure to the extent they consider            
necessary and selective tests of transactions to support their report.          

The Board of Directors, through its Audit Committee, which is composed of       
four Board members who are independent of management, is responsible for        
determining that management fulfills its responsibility with respect to the     
Corporation's financial statements and the system of internal accounting        
controls.                                                                       

The Audit Committee meets regularly with representatives of management, the     
independent accountants and the Corporation's internal auditors to review       
audits, financial reporting and internal control matters, and when              
appropriate, meets with the Corporation's outside counsel on relevant           
matters. The independent accountants and the internal auditors have full and    
free access to the Audit Committee and regularly meet privately with the        
Audit Committee.                                                                

Coopers & Lybrand, independent accountants, have been engaged by the Audit      
Committee of the Board of Directors, with the approval of the stockholders,     
to audit the Corporation's financial statements. Their report follows.          

Robert B. Palmer                                                                
President and Chief Executive Officer                                           

Vincent J. Mullarkey                                                            
Vice President, Finance and Chief Financial Officer                             

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Report of Independent Accountants                                               

To The Stockholders and Directors, Digital Equipment Corporation                

We have audited the accompanying consolidated balance sheets of Digital         
Equipment Corporation as of July 2, 1994 and July 3, 1993, and the related      
consolidated statements of operations, cash flows, and stockholders' equity     
for each of the three fiscal years in the period ended July 2, 1994. These      
financial statements are the responsibility of the Corporation's management.    
Our responsibility is to express an opinion on these financial statements       
based on our audits.                                                            

We conducted our audits in accordance with generally accepted auditing          
standards. Those standards require that we plan and perform the audit to        
obtain reasonable assurance about whether the financial statements are free     
of material misstatement.  An audit includes examining, on a test basis,        
evidence supporting the amounts and disclosures in the financial statements.    
An audit also includes assessing the accounting principles used and             
significant estimates made by management, as well as evaluating the overall     
financial statement presentation. We believe that our audits provide a          
reasonable basis for our opinion.                                               

In our opinion, the financial statements referred to above present fairly, in   
all material respects, the consolidated financial position of Digital           
Equipment Corporation as of July 2, 1994 and July 3, 1993, and the              
consolidated results of its operations and cash flows for each of the three     
fiscal years in the period ended July 2, 1994, in conformity with generally     
accepted accounting principles.                                                 

As discussed in Note G to the consolidated financial statements, the            
Corporation changed its method of accounting for postretirement benefits        
other than pensions in fiscal 1992.                                             

Coopers & Lybrand                                                               

Boston, Massachusetts                                                           
July 26, 1994                                                                   

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Consolidated Statements of Operations                                                            
Digital Equipment Corporation                                                                    


(in thousands except per share data)                                                   Year Ended
_________________________________________________________________________________________________
                                                       July 2, 1994    July 3,1993  June 27, 1992
_________________________________________________________________________________________________
                                                                                                 
Revenues (Notes A and B)                                                                         
Product sales                                          $  7,191,251    $ 7,587,994   $ 7,696,029 
Service and other revenues                                6,259,539      6,783,375     6,234,843 
                                                       __________________________________________
Total operating revenues                                 13,450,790     14,371,369    13,930,872 
                                                       __________________________________________
Costs and Expenses (Notes A, G, and K)                                                           
Cost of product sales                                     4,968,025      4,464,445     4,248,118 
Service expense and cost of other revenues                3,943,612      4,166,946     3,883,705 
Research and engineering expenses                         1,301,347      1,530,119     1,753,898 
Selling, general and administrative expenses (Note J)     4,027,869      4,447,160     4,680,822 
Restructuring charges (Note E)                            1,206,000          -         1,500,000 
                                                       __________________________________________
Operating loss                                           (1,996,063)      (237,301)   (2,135,671)
Interest income                                              49,422         63,831        96,176 
Interest expense                                             73,353         50,837        38,517 
                                                       __________________________________________
Loss before income taxes and cumulative effect of                                                
changes in accounting principles                         (2,019,994)      (224,307)   (2,078,012)
Provision for income taxes (Notes A and C)                   85,043         27,023       232,000 
                                                       __________________________________________
Loss before cumulative effect of changes in                                                      
accounting principles                                    (2,105,037)      (251,330)   (2,310,012)
Cumulative effect of changes in accounting principles,                                           
net of tax (Notes C and G)                                   51,026           -          485,495 
                                                       __________________________________________
Net Loss                                                 (2,156,063)      (251,330)   (2,795,507)
Dividends on preferred stock (Note L)                        10,650            _             _   
                                                       __________________________________________
Net loss applicable to common stock                      (2,166,713)      (251,330)   (2,795,507)
                                                       __________________________________________
Per Common Share (Note A)                                                                        
Loss applicable before cumulative effect                                                         
of changes in accounting principles                    $     (15.43)   $     (1.93)  $    (18.50)
Cumulative effect of changes in accounting principles          (.37)           -           (3.89)
                                                       __________________________________________
Net Loss Applicable per Common Share (Note A)          $     (15.80)   $     (1.93)  $    (22.39)
                                                       __________________________________________
Weighted average common shares outstanding                  137,090        130,409       124,864 
_________________________________________________________________________________________________

The accompanying notes are an integral part of these financial statements.                       

                                                                               
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Consolidated Balance Sheets                                                                    
Digital Equipment Corporation                                                                  

                                                                                               

(in thousands)                                                                                 
_______________________________________________________________________________________________
                                                                   July 2, 1994    July 3, 1993
_______________________________________________________________________________________________
                                                                                               
Assets                                                                                         
Current Assets                                                                                 
Cash and cash equivalents (Note A)                                 $ 1,180,863     $ 1,643,195 
Accounts receivable, net of allowance of $111,925 and $110,764       3,318,854       3,020,252 
Inventories (Note A)                                                 2,063,978       1,755,140 
Prepaid expenses and deferred income taxes (Note C)                    324,676         463,928 
                                                                   ____________________________
Total current assets                                                 6,888,371       6,882,515 
Net property, plant and equipment (Note A)                           3,129,489       3,178,291 
Other assets (Notes A, C, D and J)                                     561,911         889,537 
                                                                   ____________________________
Total assets                                                       $10,579,771     $10,950,343 
_______________________________________________________________________________________________
Liabilities and Stockholders' Equity                                                           
Current Liabilities                                                                            
Bank loans and current portion of long-term debt (Note F)          $    32,614     $    21,335 
Accounts payable                                                     1,197,350         822,434 
Income taxes payable (Note C)                                           20,753          57,614 
Salaries, wages and related items                                      619,756         556,151 
Deferred revenues and customer advances (Note A)                     1,239,792       1,138,323 
Accrued restructuring costs (Note E)                                 1,351,075         738,989 
Other current liabilities                                              594,925         583,868 
                                                                   ____________________________
Total current liabilities                                            5,056,265       3,918,714 
Deferred income taxes (Note C)                                           4,758            -    
Long-term debt (Note F)                                              1,010,680       1,017,577 
Postretirement and other postemployment benefits (Note G)            1,228,269       1,128,653 
                                                                   ____________________________
Total liabilities                                                    7,299,972       6,064,944 
                                                                   ____________________________
Commitments and contingencies (Note H)                                                         

Stockholders' Equity (Notes K and L)                                                           
Preferred stock, $1.00 par value; authorized 25,000,000 shares;                                
4,000,000 shares of Series A 8 7/8% Cumulative Preferred Stock                                 
issued and outstanding                                                   4,000            -    
Common stock, $1.00 par value; authorized 450,000,000 shares;                                  
142,287,078 shares and 135,489,805 shares issued                       142,287         135,490 
Additional paid-in capital                                           3,390,040       2,851,960 
Retained earnings/(deficit)                                           (256,528)      1,937,627 
Treasury stock at cost; 0 shares and 497,551 shares                      -             (39,678)
                                                                   ____________________________
Total stockholders' equity                                           3,279,799       4,885,399 
                                                                   ____________________________
Total liabilities and stockholders' equity                         $10,579,771     $10,950,343 
_______________________________________________________________________________________________

The accompanying notes are an integral part of these financial statements.                     

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Consolidated Statements of Cash Flows                                                             
Digital Equipment Corporation                                                                     


(in thousands)                                                                                    
________________________________________________________________________________________________  
                                                       July 2, 1994   July 3,1993  June 27, 1992  
________________________________________________________________________________________________  
                                                                                                  
Cash Flows from Operating Activities                                                              
Net loss                                                 $(2,156,063)   $ (251,330)  $(2,795,507) 
                                                          ________________________________________
Adjustments to reconcile net loss to                                                              
net cash provided by operating activities:                                                        
Depreciation                                                 573,970       698,631       732,536  
Amortization                                                 106,584       139,552       100,292  
Reduction in carrying value of intangible assets (Note J)    310,000          -             -     
Other adjustments to income                                   84,026       185,617       269,095  
(Increase)/decrease in accounts receivable                  (298,602)      574,016       (86,163) 
(Increase)/decrease in inventories                          (308,838)     (141,106)      155,881  
(Increase)/decrease in prepaid expenses                       82,513       (26,552)       42,908  
Increase/(decrease) in accounts payable                      374,916      (218,866)      277,918  
Increase in taxes                                             18,913        75,590        55,142  
Increase/(decrease) in salaries, wages, benefits and                                              
related items (Note G)                                       163,221       (49,581)    1,115,240  
Increase/(decrease) in deferred revenues and                                                      
customer advances                                            101,469       (70,312)      101,421  
Increase/(decrease) in accrued restructuring                                                      
costs (Note E)                                               612,086      (807,915)      510,200  
Decrease in other current liabilities                        (39,101)      (60,828)      (48,259) 
                                                         _______________________________________  
Total adjustments                                          1,781,157       298,246     3,226,211  
                                                         _______________________________________  
Net cash flows from operating activities                    (374,906)       46,916       430,704  
                                                         _______________________________________  
Cash Flows from Investing Activities                                                              
Investment in property, plant and equipment                 (682,100)     (528,691)     (710,436) 
Proceeds from the disposition of property,                                                        
plant and equipment                                           97,456        46,049        15,141  
Investment in other assets (Note J)                          (64,377)     (423,573)     (139,459) 
Proceeds from the disposition of other assets                 23,516        22,100          -     
Business acquisitions, net of cash acquired (Note J)            -             -         (146,387) 
                                                         _______________________________________  
Net cash flows from investing activities                    (625,505)     (884,115)     (981,141) 
                                                         _______________________________________  
Net cash flows from operating and investing activities    (1,000,411)     (837,199)     (550,437) 
                                                         _______________________________________  
Cash Flows from Financing Activities                                                              
Proceeds from issuance of debt                                22,742       984,482        25,821  
Payments to retire debt                                      (19,451)      (36,860)     (108,472) 
Purchase of treasury shares                                     -             -         (185,292) 
Issuance of preferred, common and treasury shares,                                                
including tax effects                                        536,563       195,600       231,502  
Dividends paid                                                (1,775)         -             -     
                                                         _______________________________________  
Net cash flows from financing activities                     538,079     1,143,222       (36,441) 
                                                         _______________________________________  
Net increase/(decrease) in cash and cash equivalents        (462,332)      306,023      (586,878) 
Cash and cash equivalents at beginning of year             1,643,195     1,337,172     1,924,050  
                                                         _______________________________________  
Cash and cash equivalents at end of year                 $ 1,180,863    $1,643,195   $ 1,337,172  
________________________________________________________________________________________________  

The accompanying notes are an integral part of these financial statements.                        

                                                                               
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Consolidated Statements of Stockholders' Equity                                                                      
Digital Equipment Corporation                                                                                        

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                                                            Additional       Retained                          Total 
                                    Preferred       Common     Paid-in      Earnings/      Treasury    Stockholders' 
(in thousands)                          Stock        Stock     Capital      (Deficit)         Stock           Equity 
_____________________________________________________________________________________________________________________
                                                                                                                     
June 29, 1991                           -         $130,008  $2,636,141     $5,344,855     $(487,165)     $ 7,623,839 
_____________________________________________________________________________________________________________________
Purchase of 3,014,083 shares                                                                                         
of treasury stock                                                                          (185,292)        (185,292)
Shares issued under stock plans                                              (266,660)      498,251          231,591 
Restricted stock plans, charge                                                                                       
to operations                                                   56,303                                        56,303 
Net loss-1992                                                              (2,795,507)                    (2,795,507)
____________________________________________________________________________________________________________________ 
June 27, 1992                           -         $130,008  $2,692,444     $2,282,688     $(174,206)     $ 4,930,934 
____________________________________________________________________________________________________________________ 
Shares issued under stock plans                      5,482     149,321        (93,731)      134,528          195,600 
Restricted stock plans, charge                                                                                       
to operations                                                   42,038                                        42,038 
Repurchase unexercised                                                                                               
option shares                                                  (31,843)                                      (31,843)
Net loss-1993                                                                (251,330)                      (251,330)
_____________________________________________________________________________________________________________________
July 3, 1993                            -         $135,490  $2,851,960     $1,937,627     $ (39,678)     $ 4,885,399 
_____________________________________________________________________________________________________________________
Issuance of preferred stock          $4,000                    382,745                                       386,745 
Shares issued under stock plans                      6,797     130,785        (27,442)       39,678          149,818 
Restricted stock plans, charge                                                                                       
to operations                                                   24,550                                        24,550 
Dividends declared--preferred stock                                           (10,650)                       (10,650)
Net loss-1994                                                              (2,156,063)                    (2,156,063)
_____________________________________________________________________________________________________________________
July 2, 1994                         $4,000       $142,287  $3,390,040     $ (256,528)    $    -         $ 3,279,799 
_____________________________________________________________________________________________________________________
<FN>                                                                                                                  

See Notes K and L of Notes to Consolidated Financial Statements.                                                     
Cash dividends on common stock have never been paid by the Corporation. The                                          
Corporation commenced paying dividends on preferred stock issued in fiscal                                           
1994.                                                                                                                
______________________________________________________________________________________________________________       
The accompanying notes are an integral part of these financial statements.                                           

                                                                               
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Notes to Consolidated Financial Statements                                      

Note A - Significant Accounting Policies                                        
___________________________________________________________________________     

Principles of Consolidation - The consolidated financial statements of the      
Corporation include the financial statements of the parent and its U.S. and     
non-U.S. subsidiaries. All intercompany accounts and profits have been          
eliminated. Certain prior years' amounts have been reclassifed to conform       
with current year presentation.                                                 

Fiscal Year - The fiscal year of the Corporation is the                         
fifty-two/fifty-three week period ending the Saturday nearest the last day      
of June. The fiscal years ended July 2, 1994 and June 27, 1992 included 52      
weeks. The fiscal year ended July 3, 1993 included 53 weeks.                    

Translation of Foreign Currencies - For non-U.S. operations, the U.S.           
dollar is the functional currency. Monetary assets and liabilities of           
foreign subsidiaries are translated into U.S. dollars at current exchange       
rates. Nonmonetary assets such as inventories and property, plant and           
equipment are translated at historical rates. Income and expense items are      
translated at average exchange rates prevailing during the year, except that    
inventories and depreciation charged to operations are translated at            
historical rates. Exchange gains and losses arising from translation are        
included in current income.                                                     

The Corporation enters into foreign exchange option and forward contracts to    
hedge the impact of exchange rate movements on operations and the asset and     
liability positions of non-U.S. subsidiaries. The impact of exchange rate       
movements on contracts used to hedge transactions is included in income when    
the operating revenues and expenses are recognized and, for contracts used      
to hedge assets and liabilities, in the period in which the exchange rates      
change. The cash flows related to these contracts are classified in the         
Consolidated Statements of Cash Flows, as part of cash flows from operating     
activities. See Note I for information on the Corporation's foreign exchange    
contracts.                                                                      

Revenue Recognition - Revenues from product sales are recognized at the time    
the product is shipped. Service and other revenues are recognized ratably       
over the contractual period or as the services are performed.                   

Warranty - Warranty revenues are recognized ratably over the warranty           
period; warranty-related costs are recognized as service expense is             
incurred. The Corporation also provides warranty coverage as a product          
attribute on certain products. Estimated costs to repair such products are      
accrued as product cost when the product is shipped.                            

Net Income/(Loss) Applicable per Common Share - Per common share amounts        
are calculated based on the weighted average number of common shares and        
common share equivalents outstanding during periods of net income, after        
deducting applicable preferred stock dividends. Common share equivalents are    
attributable to stock options. Per share amounts are calculated based only      
on the weighted average number of common shares outstanding during periods      
of net loss, after deducting applicable preferred stock dividends.              

Cash Equivalents - The Corporation considers all highly liquid temporary        
cash investments with maturities of three months or less at date of             
acquisition to be cash equivalents. Cash equivalents are valued at cost plus    
accrued interest, which approximates market.                                    

Taxes - In general, the Corporation's practice is to reinvest the earnings      
of its foreign subsidiaries in those operations, and repatriation of            
retained earnings is done only when it is advantageous to do so. Applicable     
taxes are provided only on amounts planned to be remitted.                      

Inventories - Inventories are stated at the lower of cost (first-in,            
first-out) or market.                                                           

(in thousands)                                                                
____________________________________________________________________          
                            July 2, 1994    July 3, 1993
____________________________________________________________________          
Raw materials                          $    476,172    $    331,506           
Work-in-process                             605,503         502,200           
Finished goods                              982,303         921,434           
____________________________________________________________________          
Total inventories                      $  2,063,978    $  1,755,140           
____________________________________________________________________          

Property, Plant and Equipment - Property, plant and                           
equipment are stated at cost.                                                 

(in thousands)                                                              
___________________________________________________________________           
                            July 2, 1994    July 3, 1993
___________________________________________________________________           
Land                                    $   356,586    $    363,264           
Buildings                                 1,967,815       1,887,211           
Leasehold improvements                      414,622         532,369           
Machinery and equipment                   4,281,866    $  4,410,586           
___________________________________________________________________           
Total property, plant and equipment       7,020,889       7,193,430           
Less accumulated depreciation             3,891,400       4,015,139           
___________________________________________________________________           
Net property, plant and equipment       $ 3,129,489    $  3,178,291           
___________________________________________________________________           

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Note A - Significant Accounting Policies (continued)                          
___________________________________________________________________           

Depreciation expense is computed principally on the following bases:          

Classification         Depreciation Lives and Methods                         
__________________________________________________________                    
Buildings              33 years (straight-line)                               

Leasehold              Life of assets or term of lease,                       
Improvements           whichever is shorter (straight-line)                   

Machinery and                                                                 
Equipment              3 to 10 years (accelerated methods)                    
__________________________________________________________                    

When assets are retired, or otherwise disposed of, the assets and related       
accumulated depreciation are removed from the accounts. Gains or losses         
resulting from restructuring actions are included in accrued restructuring      
costs. Other resulting gains and losses are included in income.                 

Other Assets - Other assets include equity investments, capitalized software    
development costs, goodwill, deferred taxes and other intangible assets.        

Software development costs are capitalized beginning at the time that           
technical feasibility is established. These costs are amortized over three      
years from the date the products are available for general use.                 

Goodwill is amortized using the straight-line method over the estimated         
useful life of the asset, subject to periodic review of realizability.          

Other intangible assets are amortized using unit-volume and straight-line       
methods, as applicable, over their estimated useful lives, subject to           
periodic review of realizability.                                               

Note B  Geographic Operations                                                   
__________________________________________________________________________      

Industry - The Corporation operates in one business segment: the design,        
manufacture, sale and service of networked computer systems.                    

Non-U.S. Operations - Sales and marketing operations outside the United         
States are conducted principally through sales subsidiaries in Canada,          
Europe, Central and South America, Asia and the Pacific Rim; by direct          
sales from the parent corporation and through various representative            
distributorship arrangements and value-added resellers. The Corporation's       
non-U.S. manufacturing operations include plants in the Americas, Europe,       
Asia and the Pacific Rim. The products of these manufacturing plants are        
sold to the Corporation's sales subsidiaries, the parent corporation or         
other manufacturing plants for further processing.                              

Intercompany transfers between geographic areas are accounted for at prices     
which are intended to be representative of unaffiliated party transactions.     

Sales to unaffiliated customers outside the United States, including U.S.       
export sales, were $8.3 billion, $9.2 billion, and $8.8 billion for the         
fiscal years ended July 2, 1994, July 3, 1993 and June 27, 1992,                
respectively, which represented 62%, 64% and 63%, respectively, of total        
operating revenues. Where applicable, the retained earnings of                  
substantially all of the Corporation's international subsidiaries have been     
reinvested to support operations. These accumulated retained earnings,          
before elimination of intercompany transactions, aggregated $2.9 billion,       
$4.0 billion and $3.6 billion at July 2, 1994, July 3, 1993 and June 27,        
1992, respectively.                                                             

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Note B - Geographic Operations (continued)                                   
_____________________________________________________________________________

                                                                             
  (in thousands)                                                             
_____________________________________________________________________________
Year Ended                     July 2, 1994    July 3, 1993   June 27, 1992  
_____________________________________________________________________________
                                                                             
Net Revenues                                                                 
United States:                                                               
Unaffiliated customer sales    $  5,176,748    $  5,219,276    $  5,154,159  
Inter-area transfers              1,830,749       1,793,832       1,900,455  
                               _____________________________________________ 
                                  7,007,497       7,013,108       7,054,614  
                               _____________________________________________ 
Europe:                                                                      
Unaffiliated customer sales       5,832,332       6,973,709       6,751,222  
Inter-area transfers                373,354         633,935         520,953  
                               _____________________________________________ 
                                  6,205,686       7,607,644       7,272,175  
                               _____________________________________________ 

Canada, Asia, Latin Americas,                                                
Pacific Rim:                                                                 
Unafiliated customer sales        2,441,710       2,178,384       2,025,491  
Inter-area transfers              1,707,291       1,378,870       1,168,956  
                               _____________________________________________ 
                                  4,149,001       3,557,254       3,194,447  
                               _____________________________________________ 
Eliminations                     (3,911,394)     (3,806,637)     (3,590,364) 
                               _____________________________________________ 
Net revenue                    $ 13,450,790    $ 14,371,369    $ 13,930,872  
____________________________________________________________________________ 
Income/(Loss)                                                                
United States                  $   (740,709)   $   (363,454)   $ (1,971,032) 
Europe                           (1,109,188)         12,446        (184,951) 
Canada, Asia, Latin Americas,                                                
Pacific Rim                        (170,097)        115,091          68,313  
Eliminations                         23,931          (1,384)        (48,001) 
                               ______________________________________________
Operating loss                   (1,996,063)       (237,301)     (2,135,671) 
                               ______________________________________________
Interest income                      49,422          63,831          96,176  
Interest expense                     73,353          50,837          38,517  
                               ______________________________________________
Loss before income taxes and                                                 
cumulative effect of changes                                                 
in accounting principles       $ (2,019,994)   $   (224,307)   $ (2,078,012) 
_____________________________________________________________________________
Assets                                                                       
United States                  $  4,997,184    $  4,202,395    $  4,766,206  
Europe                            4,098,780       4,910,165       5,195,715  
Canada, Asia, Latin Americas,                                                
Pacific Rim                       1,945,236       1,730,754       1,854,167  
Corporate assets                  1,180,863       1,444,259       1,183,387  
Eliminations                     (1,642,292)     (1,337,230)     (1,715,166) 
                               ______________________________________________
Total assets                   $ 10,579,771    $ 10,950,343    $ 11,284,309  
_____________________________________________________________________________

                                                                               
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 Note C - Income Taxes                                                        
____________________________________________________________________________  

Income/(loss) before income taxes and cumulative effect of changes in         
accounting principles (in thousands)                                          
                                                                              
______________________________________________________________________________
Year Ended                     July 2, 1994    July 3, 1993    June 27, 1992  
_____________________________________________________________________________ 
                                                                              
U.S.                           $   (754,844)   $  (383,808)    $  (1,934,186) 
Non-U.S.                         (1,265,150)       159,501          (143,826) 
                               ______________________________________________ 
Total                          $ (2,019,994)   $  (224,307)    $  (2,078,012) 
_____________________________________________________________________________ 

Reconciliation of U.S. federal statutory rate to actual tax rate              
_____________________________________________________________________________ 
Year Ended                     July 2, 1994    July 3, 1993     June 27, 1992 
_____________________________________________________________________________ 
U.S. federal statutory tax                                                    
(benefit) rate                        (35.0)%        (34.0)%           (34.0)%
Tax benefit of manufacturing                                                  
operations in:(a)                                                             
   Puerto Rico                          -             (8.1)              1.7  
   Ireland                             (2.3)         (16.0)             (3.4) 
   Singapore                           (0.1)          (7.8)               -   
Benefit not recorded due to net                                               
loss carryforward position                                                    

   U.S.                                 13.5           60.5              31.5 
   Non-U.S.                             41.1           21.6              16.5 
Non-U.S. tax rates                    (12.0)          (0.8)              0.2  
Other                                  (1.0)          (3.4)             (1.3) 
                                    __________________________________________
Effective tax rate                      4.2%          12.0%             11.2% 
_____________________________________________________________________________ 
<FN>                                                                           

Note (a) The income from products manufactured for export by the Corporation's
manufacturing subsidiary in Ireland is subject to a 10% tax rate through      
December 2010. The income from certain products manufactured by the           
Corporation's manufacturing subsidiary in Singapore is taxed at 15% through   
December 1995. During fiscal year 1993, the Corporation discontinued its      
manufacturing operation in Puerto Rico.                                       


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Components of provisions for (benefits from) U.S. federal and non-U.S.      
income taxes (in thousands)                                                 


____________________________________________________________________________
Year Ended                  July 2, 1994   July 3, 1993    June 27, 1992    
____________________________________________________________________________
                                                                            
U.S. federal:                                                               
Current                         $   -          $ (5,023)       $(155,883)   
Deferred                         (14,431)       (19,871)         107,249    
                                ____________________________________________
Total                            (14,431)       (24,894)         (48,634)   
                                ____________________________________________
Non-U.S.:                                                                   
Current                            5,618        (57,525)          92,794    
Deferred                          92,989        103,497          183,998    
                                ____________________________________________
Total                             98,607         45,972          276,792    
                                ____________________________________________
State income taxes                   867          5,945            3,842    
                                ____________________________________________
Total income taxes              $ 85,043       $ 27,023        $ 232,000    
____________________________________________________________________________

The Corporation adopted Statement of Financial Accounting Standards (SFAS)      
No. 109 - Accounting for Income Taxes, effective July 4, 1993. The              
Corporation had previously accounted for income taxes under Accounting          
Principles Board Opinion No. 11. In the first quarter of fiscal year 1994,      
the Corporation recorded a one-time benefit of $20,000,000 or $.14 per common   
share, for the recognition of previously unrecognized tax benefits. There is    
no cash flow impact from the adoption of SFAS No. 109. The standard was         
adopted on a prospective basis and amounts presented for prior years were not   
restated.                                                                       

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Note C - Income Taxes (continued)                                           
____________________________________________________________________________
Significant components of deferred tax assets and liabilities (in thousands)

______________________________________________________________________      
Year ended                                          July 2, 1994            
______________________________________________________________________      
                                                 Assets   Liabilities       
______________________________________________________________________      
                                                                            
Inventory-related transactions              $  101,933       $  8,437       
Depreciation                                    61,335         44,693       
Deferred warranty revenue                       80,506           -          
Postretirement/postemployment benefits         400,037         18,323       
Restructuring                                  446,505           -          
Tax loss carryforwards                       1,424,927           -          
Tax credit carryforwards                       149,013           -          
Intangible assets                              106,368           -          
Other                                          168,392         98,465       
                                             ________________________       
Gross deferred tax balances                  2,939,016        169,918       
Valuation allowance                          2,677,673           -          
                                             ________________________       
Net deferred tax balances                   $  261,343       $169,918       
_____________________________________________________________________       

                                                                               
The gross deferred tax asset from tax loss carryforwards of $1.4 billion        
represents $3.7 billion of net operating loss carryforwards on a tax return     
basis which will generally expire as follows: $200,000,000 in 1998,             
$350,000,000 in 1999, $1.2 billion in 2007, $500,000,000 in 2008,               
$600,000,000 in 2009, and the remainder thereafter.                             

Tax credit carryforwards will generally expire as follows:  $40,000,000 in      
2001, $50,000,000 in 2002, $50,000,000 in 2003, and the remainder thereafter.   

Major changes in the components of temporary differences and carryforwards      
for the period ended July 2, 1994 include increases in gross deferred tax       
assets relating to restructuring, tax loss carryforwards and intangibles in     
the amounts of $211,938,000, $399,725,000 and $106,368,000, respectively.       

For the period ended July 2, 1994, the total valuation allowance for deferred   
tax assets increased $872,887,000. The increase in the valuation allowance      
resulted from increased gross deferred tax assets associated with tax loss      
carryforwards, restructuring and other deferred tax assets.                     

Gross deferred taxes were increased by $32,410,000 as a result of statutory     
tax rate changes, fully offset by valuation allowances.                         

Fiscal year 1994 income tax expense includes a $70,000,000 reduction in net     
deferred tax assets associated with non-U.S. operations.                        

In connection with its normal examination of the Corporation's 1989, 1990 and   
1991 tax returns, the Internal Revenue Service has proposed adjustments. The    
Corporation believes its judgments in these matters have been appropriate and   
any adjustments which might result would not have a material effect on the      
financial statements.                                                           

In fiscal years 1994, 1993 and 1992, income taxes paid were approximately       
$42,419,000, $53,889,000 and $144,620,000, respectively.                        

See Note A for further explanation of the Corporation's income tax accounting   
policies.                                                                       

Note D - Capitalized Computer Software Development Costs                        
_____________________________________________________________________________   

Unamortized computer software development costs were $124,780,000 and           
$138,024,000 at July 2, 1994 and July 3, 1993, respectively. Amortization       
expense was $67,515,000, $68,978,000 and $63,956,000 for the years ended July   
2, 1994, July 3, 1993 and June 27, 1992, respectively. Accumulated              
amortization was $208,837,000 and $168,845,000 at July 2, 1994 and July 3,      
1993, respectively.                                                             

Note E - Restructuring Actions                                                  
____________________________________________________________________________    

Accrued restructuring costs and charges include the cost of involuntary         
employee termination benefits, facility closures and related costs              
associated with restructuring actions. Employee termination benefits include    
severance, wage continuation, notice pay, medical and other benefits.           
Facility closures and related costs include gains and losses on disposal of     
property, plant and equipment, lease payments and related costs.                

Restructuring costs are accrued and charged to expense in accordance with an    
approved management plan, supported by an appropriate level of specificity      
for the planned actions. Actual restructuring costs are recognized as a         
reduction in the accrued liability in the period incurred.                      

While expenses continue to decline, the Corporation's cost structure is still   
too high for the level and mix of total operating revenues. As a result, at     
the end of fiscal year 1994, the Corporation approved additional restructuring  
actions and accrued related costs of $1.2 billion. Cash expenditures associated 
with these actions are expected to be approximately $580,000,000 in the first   
half of fiscal 1995, $420,000,000 in the second half of fiscal 1995 and         
$240,000,000 related to facility closures beyond fiscal 1995. These actions do  
not include workforce or facility reductions that may result from divestments.  

The cost of employee separations associated with the fiscal year 1994 charge    
includes termination benefits for approximately 20,000 employees. A portion     
of these employee separations occurred near the end of the fourth quarter of    
fiscal 1994 and the remainder will occur in fiscal 1995. These employees are    
located principally in the U.S. and Europe. The greatest portion of employee    
separations, approximately 40%, are expected to come from sales and marketing   
functions, as the Corporation sells more products through indirect channels     
of distribution. Most other organizations and functions also will be affected   
by the planned reduction in employees. The fiscal 1994 charge also covers       
costs associated with closure of 10 million square feet of facilities,          
including office and manufacturing space, principally in the U.S. and Europe.   

Restructuring actions have resulted in termination of approximately 12,000,     
17,000 and 10,000 employees in fiscal years 1994, 1993 and 1992,                
respectively.                                                                   

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Accrued restructuring costs (in thousands)                                   
____________________________________________________________________________ 
Year ended                      July 2, 1994   July 3, 1993  June 27, 1992   
____________________________________________________________________________ 
                                                                             
Balance, beginning of year        $  738,989   $  1,546,904    $ 1,036,704   
                                  __________________________________________ 
Charges to operations:                                                       
  Employee separations               679,000          -          1,000,000   
  Facility closures and                                                      
  related costs                      527,000          -            500,000   
                                  __________________________________________ 
                                   1,206,000          -          1,500,000   
                                  __________________________________________ 
Costs incurred:                                                              
  Employee separations               372,450        454,900        759,500   
  Facility closures and                                                      
  related costs                      212,300        314,250        168,480   
  Other                                9,164         38,765         61,820   
                                  __________________________________________ 
                                     593,914        807,915        989,800   
                                  __________________________________________ 
Balance, end of year              $1,351,075   $    738,989    $ 1,546,904   
                                  __________________________________________ 

Cash expenditures:                                                           
  Employee separations            $  532,000   $    651,300    $   822,150   
  Facility closures and related                                              
  costs, net of proceeds              67,550        174,700        106,050   
                                  __________________________________________ 
                                  $  599,550   $    826,000    $   928,200   
 ____________________________________________________________________________

                                                                               
At the end of fiscal year 1992, having fully utilized the balance of          
restructuring costs accrued at the end of fiscal 1991 and in response to an   
unanticipated decline in product sales during the second half of fiscal 1992  
and resulting operating losses, additional restructuring plans were           
formulated. These actions resulted in the accrual of $1.5 billion of          
restructuring costs.                                                          

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Note F - Debt                                                                               
___________________________________________________________________________________________ 


Long-term debt, exclusive of current maturities (in thousands):                             
___________________________________________________________________________________________ 
                              Maturity Date                                                 
                              (Calendar Year)  Interest Rate    July 2,1994    July 3, 1993 
___________________________________________________________________________________________ 
                                                                                            
Lease obligations              1997-2002       7.64%-11.0%(a)   $    17,950    $     24,578 
Notes (b)                           1997                7%          250,000         250,000 
Notes (b)                           2002             7 1/8%         250,000         250,000 
Debentures (b)                      2012             8 5/8%         250,000         250,000 
Debentures (b)                      2023             7 3/4%         250,000         250,000 
Unamortized discount and                                                                    
commissions (b)                                                     (15,092)        (16,183)
Other debt obligations                                                7,822           9,182 
                                                                ___________________________ 
Total long-term debt,                                                                       
exclusive of current maturities                                 $ 1,010,680    $  1,017,577 
                                                                ___________________________ 

<FN>                                                                                         

Note (a) Weighted average interest rate at July 2, 1994 and July 3, 1993 of                 
8.5% and 8.7%, respectively.                                                                

Note (b) The Notes and Debentures are not redeemable prior to maturity and                  
are not entitled to any sinking fund. The unamortized discount and                          
commissions relate to these Notes and Debentures.                                           
____________________________________________________________________________                

Principal payments during the next five fiscal years are as follows:            
1995 - $2,984,000; 1996 - $5,416,000; 1997 - $5,648,000; 1998 - $256,266,000;   
1999 - $935,000.                                                                

In fiscal years 1994, 1993 and 1992, interest paid was $76,203,000,             
$37,123,000 and $43,494,000, respectively.                                      

Based primarily on dealer quotes, the fair value of long-term borrowings,       
including current maturities, was approximately $834,000,000 and $1.1 billion   
at July 2,1994 and July 3,1993, respectively.                                   

The Corporation has entered into interest rate swap agreements which            
effectively convert a portion of the long-term debt from fixed to variable      
rates. As of July 2, 1994, the net face amount of interest rate swaps           
outstanding was $1.3 billion, of which a net $750,000,000 was subject to        
variable rates as a result of offsetting positions. Based on dealer quotes,     
the fair value of such agreements, which represents the replacement value,      
was a net payable of $42,800,000 at July 2, 1994. There were no interest rate   
swaps in effect at July 3,1993.                                                 

The Corporation had available lines of credit totaling $1.2 billion for         
fiscal years ended July 2,1994 and July 3,1993. Included in these lines of      
credit was a $750,000,000 committed credit facility which was terminated by     
the Corporation on July 25,1994, having been replaced as a source of            
liquidity with an accounts receivable securitization facility as described      
below. Substantially all of these lines of credit were unused at the end of     
fiscal 1994 and 1993. Except for the $750,000,000 credit facility, which was    
subject to an annual facility fee of 0.25%, commitment fees on the unused       
lines of credit were neither material nor significant.                          

In addition to available lines of credit, in June 1994, the Corporation         
entered into a five-year agreement with a major financial institution (i)       
providing for the transfer and sale by the Corporation to a wholly-owned        
subsidiary of the Corporation of a designated pool of domestic trade accounts   
receivable (the "Receivables") and (ii) allowing the Corporation to sell to     
a group of investors an undivided ownership interest in the Receivables for     
proceeds of up to $600,000,000 (the "Purchase Limit"). The agreement includes   
annual program fees totaling 0.2% of the Purchase Limit. As of July 2, 1994,    
the entire $600,000,000 was available to the Corporation; however, no           
interests in the Receivables had been sold.                                     

Note G - Postretirement and Other Postemployment Benefits                       
_____________________________________________________________________________   

Pension Plans - The Corporation and its subsidiaries have defined benefit and   
defined contribution pension plans covering substantially all employees. The    
benefits are based on years of service and compensation during the employee's   
career. Pension cost is based on estimated benefit payment formulas. It is      
the Corporation's policy to make tax-deductible contributions to the plans in   
accordance with local laws. Contributions are intended to provide not only      
for benefits attributed to service to date but also for those expected to be    
earned in the future.  For the U.S. pension plan, there were no contributions   
in the fiscal years 1994, 1993 or 1992  due to the full funding limit of the    
Omnibus Budget Reconciliation Act of 1987. The assets of the plans include      
corporate equity and debt securities, government securities and real estate.    

The Corporation's fiscal year 1994 pension cost, before curtailment gains,      
declined, reflecting the positive effects of restructuring activities and a     
change in future discretionary plan improvements. The net periodic pension      
cost for defined contribution pension plans was $12,585,000, $7,944,000 and     
$11,202,000 for the fiscal years ended July 2,1994, July 3,1993 and June 27,    
1992, respectively. The measurement dates for all plans were within 90 days     
of year-end. The Corporation recognized a one-time charge of $161,658,000 in    
fiscal 1992 for special early retirement pension benefits as a component of     
restructuring costs.                                                            

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Components of net periodic pension cost (in thousands)                       
____________________________________________________________________________ 
Year Ended                      July 2, 1994   July 3, 1993    June 27, 1992 
____________________________________________________________________________ 
                                                                             
Service cost for benefits                                                    
earned during the period        $    180,694   $    192,546    $     234,842 
Interest cost on projected                                                   
benefit obligations                  191,525        201,203          180,898 
Actual return on plan assets        (143,465)      (291,127)        (166,055)
Net amortization and deferral        (79,567)        79,421          (47,927)
                                _____________________________________________
Net periodic pension cost                                                    
before curtailment gains             149,187        182,043          201,758 
Curtailment gains                   (272,918)          -            (138,100)
                                _____________________________________________
Net periodic pension cost for                                                
defined benefit pension plans   $   (123,731)  $    182,043    $      63,658 
                                _____________________________________________
Total pension cost for all                                                   
pension plans                   $   (107,686)  $    189,293    $      87,833 
_____________________________________________________________________________

Significant actuarial assumptions for pension plans                          
_____________________________________________________________________________
Year Ended                    July 2, 1994     July 3, 1993    June 27, 1992 
_____________________________________________________________________________
U.S. pension plan:                                                           
Discount rate                         8.0%             8.0%             8.5% 
Expected long-term rate of                                                   
return on plan assets                 9.0%             9.0%             9.0% 
Rate of increase in future                                                   
compensation levels                   6.0%             6.0%             6.5% 

Non-U.S. pension plans:                                                      
Discount rate                    5.0- 9.5%        5.0- 9.0%        5.0- 9.0% 
Expected long-term rate of                                                   
return on plan assets            6.0-10.0%        6.0-10.0%        6.0-10.0% 
Rate of increase in                                                          
future compensation levels       2.8- 7.2%        3.5- 7.5%        4.8- 8.0% 
____________________________________________________________________________ 

                                                                               
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Funded status of pension plans as of the year-end measurement date            
(in thousands)                                                                
______________________________________________________________________________
Year Ended                                       July 2, 1994    July 3, 1993 
______________________________________________________________________________
                                                                              
Actuarial present value of benefit obligations:                               
Vested benefit obligation                        $ (1,448,067)   $ (1,321,322)
                                                 _____________________________
Accumulated benefit obligation                   $ (1,635,422)   $ (1,497,035)
                                                 _____________________________
Projected benefit obligation                     $ (2,558,421)   $ (2,606,673)
Plan assets at fair value                           2,727,675       2,536,614 
                                                 _____________________________
Over/(under) funded projected benefit obligation      169,254         (70,059)

Contributions made after measurement date but                                 
before end of fiscal year                               2,762           2,916 
Unrecognized net gain                                (326,710)       (275,390)
Unrecognized prior service cost/(credit)              (88,519)         67,427 
Unrecognized net transition asset                     (88,916)        (78,597)
                                                 ____________________________ 
Pension liability recognized on the                                           
balance sheet                                    $   (332,129)   $   (353,703)
____________________________________________________________________________  

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Note G - Postretirement and Other Postemployment Benefits (continued)           
____________________________________________________________________________    

Postretirement Benefits Other Than Pensions - The Corporation has defined       
benefit postretirement plans that provide medical and dental benefits for       
U.S. retirees and their eligible dependents. Substantially all of the           
Corporation's U.S. employees may become eligible for postretirement benefits    
if they reach retirement age while working for the Corporation. The majority    
of the Corporation's non-U.S. subsidiaries do not offer postretirement          
benefits other than pensions to retirees.                                       

The Corporation's postretirement benefits plans other than pensions are         
funded as costs are incurred. Fiscal year 1993 expense reflects a reduction     
from the prior year resulting from cost sharing changes. Retiree                
contributions for the U.S. medical plan are based on length of service for      
employees retiring after fiscal 1993.                                           

The Corporation also recognized a one-time charge of $142,985,000 in fiscal     
year 1992 for special early postretirement benefits other than pensions as a    
component of restructuring costs.                                               

The Corporation adopted Statement of Financial Accounting Standards No. 106     
- Employers' Accounting for Postretirement Benefits Other Than Pensions in      
fiscal year 1992 and elected to recognize the cumulative effect immediately     
for its U.S. and material non-U.S. plans, which resulted in a charge of         
$485,495,000, net of tax benefits of $4,188,000, to fiscal year 1992            
results.                                                                        

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 Components of net periodic postretirement benefits costs (in thousands)     
 ____________________________________________________________________________
 Year Ended                     July 2, 1994    July 3, 1993    June 27, 1992
 ____________________________________________________________________________
                                                                             
Service cost for benefit                                                     
earned during the period           $ 24,949        $ 25,560         $ 37,543 
Interest cost on accumulated                                                 
postretirement benefits obligations  47,309          50,915           42,525 
Actual return on plan assets           -               -                -    
Net amortization and deferral        (9,964)         (8,538)            -    
                                   __________________________________________
Net periodic postretirement benefit                                          
cost before curtailment gains        62,294          67,937           80,068 
Curtailment gains                   (37,773)        (30,000)             -   
                                   __________________________________________
Net periodic postretirement                                                  
benefits cost                      $ 24,521        $ 37,937         $ 80,068 
_____________________________________________________________________________

Significant actuarial assumptions for other postretirement                   
benefits plans (dollars in thousands)                                        
_____________________________________________________________________________
Year Ended                     July 2, 1994    July 3, 1993     June 27, 1992
____________________________________________________________________________ 
U.S. plans:                                                                  
Discount rate                           8.0%            8.0%            8.5% 
Health care cost trend rate,                                                 
current year                            9.3%           10.6%           13.8% 
Health care cost trend rate,                                                 
ultimate year                           5.5%            6.0%            6.0% 
Trend rate decreases to the ultimate                                         
rate in the year                       2005            2005            2005  
Effect of a 1% increase in the trend                                         
rate:                                                                        
   Increase in accumulated                                                   
   postretirement benefits                                                   
   obligation                      $110,011        $137,913         $148,386 
   Increase in net periodic                                                  
   postretirement benefits cost    $ 15,643        $ 17,598         $ 19,674 
Non-U.S. plans:                                                              
Discount rate                      5.0- 8.5%       5.0- 8.5%        5.0- 8.5%
Health care cost trend rate,                                                 
current year                       4.0-12.0%       5.0-13.0%        5.0-14.0%
Health care cost trend rate,                                                 
ultimate year                      4.0- 7.0%       5.0- 7.0%        5.0- 7.0%
Trend rates decrease to the                                                  
ultimate rates in the years        1994-2007       1993-2050        1992-2050
Effect of a 1% increase in the                                               
trend rate:                                                                  
    Increase in accumulated                                                  
    postretirement benefit                                                   
    obligation                     $  6,057        $  5,861         $  4,280 
    Increase in net periodic                                                 
    postretirement benefit cost    $    909        $    564         $    578 
_____________________________________________________________________________

                                                                               
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Funded status of other postretirement benefits plans                         
as of the year-end measurement date (in thousands)                           
____________________________________________________________________________ 
Year Ended                                     July 2, 1994    July 3, 1993  
____________________________________________________________________________ 
                                                                             
Accumulated postretirement benefit                                           
obligations:                                                                 
Retirees                                       $   (371,191)   $   (413,887) 
Fully eligible plan participants                    (22,180)        (20,572) 
Other active plan participants                     (233,065)       (298,154) 
                                               _____________________________ 
Unfunded accumulated postretirement                                          
benefit obligation                                 (626,436)       (732,613) 
Unrecognized actuarial net loss                       1,057         149,482  
Unrecognized prior service credit                  (116,138)       (139,610) 
                                               _____________________________ 
Other postretirement benefits liability                                      
recognized on the balance sheet                $   (741,517)   $   (722,741) 
_____________________________________________________________________________


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Postemployment Benefits - In the fourth quarter of fiscal year 1994, the        
Corporation adopted Statement of Financial Accounting Standards (SFAS) No.      
112 - Employers' Accounting for Postemployment Benefits, effective as of the    
beginning of the fiscal year. This standard requires the accrual of benefits    
provided to former or inactive employees, after employment but before           
retirement. These benefits include, but are not limited to, salary              
continuation, supplemental unemployment benefits, severance benefits,           
disability-related benefits and continuation of benefits such as health care    
and life insurance coverage.                                                    

The cumulative effect of adopting this standard resulted in a one-time          
charge to income of $71,068,000 (the "transition obligation"), or $.51 per      
common share. This transition obligation represents principally the cost of     
providing medical, dental and life insurance benefits to individuals in the     
U.S. currently on long-term disability, during the estimated remaining          
period in which they will receive disability benefits. The annual expense       
under the new standard, exclusive of the transition obligation, is not          
significantly different than the annual expense under the Corporation's         
former practice. There is no cash flow impact from the adoption of SFAS No.     
112. The first quarter of fiscal year 1994 has been restated to reflect the     
change in accounting principle. Prior years' consolidated financial             
statements have not been restated to reflect this change.                       

Note H - Commitments and Contingencies                                          
____________________________________________________________________________    

Lease Commitments - Minimum annual rentals under noncancelable leases (which    
are principally for leased real estate, vehicles and equipment) for the         
fiscal years listed are as follows:                                             

Fiscal Years                                     (in thousands)                 
_______________________________________________________________                 
1995                                             $     304,895                  
1996                                                   265,081                  
1997                                                   194,866                  
1998                                                   190,148                  
1999                                                   106,002                  
Later years                                            514,661                  
______________________________________________________________                  
Total minimum lease payments                    $    1,575,653                  
______________________________________________________________                  

Total rental expense for the fiscal years ended July 2, 1994, July 3, 1993      
and June 27, 1992 amounted to $436,080,000, $503,094,000 and $544,811,000,      
respectively.                                                                   

Litigation - During the fourth quarter, the Corporation was named as a          
defendant in several purported class action lawsuits filed in the U.S.          
District Court for the Southern District of New York and the U.S. District      
Court for the District of Massachusetts alleging violations of the Federal      
securities laws arising from alleged misrepresentations and omissions in        
connection with the Corporation's issuance and sale of Series A 8 7/8%          
Cumulative Preferred Stock (the "Series A Preferred Stock") and the             
Corporation's financial results for the quarter ended April 2, 1994. The        
Corporation's directors, certain of its officers and the managing               
underwriters of the Corporation's Series A Preferred Stock offering were also   
named as defendants in certain of the actions. Plaintiffs alternatively seek    
unspecified monetary damages or rescission of their purchase of the Series A    
Preferred Stock. The Corporation believes that the claims asserted are          
without merit and intends to vigorously defend itself against the claims.       

Note I - Other Financial Instruments                                            
____________________________________________________________________________    

Off-Balance-Sheet Risk - The Corporation enters into foreign exchange option    
and forward contracts on a continuing basis for periods consistent with its     
committed exposures to limit potential losses from adverse exchange rate        
movements on operations and to delay the short-term impact of foreign           
currency movements on asset and liability positions of non-U.S. subsidiaries.   
The foreign exchange option and forward contracts generally have maturities     
which do not exceed three months and six months, respectively. The              
Corporation does not anticipate any material adverse effect due to exchange     
rate movements over the short-term period covered by these contracts. The       
Corporation does not engage in speculation. See Note A for information on the   
Corporation's accounting policy on foreign exchange.                            

As of July 2, 1994, the net face amount of foreign exchange option contracts    
outstanding, substantially all of which were in European currencies, was        
$363,000,000. Based on dealer quotes, the fair value of such contracts was a    
net receivable of $2,000,000 at July 2, 1994. There were no foreign exchange    
option contracts in effect prior to the fourth quarter of fiscal year 1994.     

As of July 2, 1994 and July 3, 1993, the net face amount of foreign exchange    
forward contracts outstanding, substantially all of which were in European      
currencies, was $558,000,000 and $1.1 billion, respectively. Based on dealer    
quotes, the fair value of such contracts, which represents the replacement      
value, was a net payable of $46,000,000 at July 2, 1994 and a net receivable    
of $14,400,000 at July 3, 1993.                                                 

Fair Value - The fair value of cash equivalents, debt, foreign exchange         
contracts and investments is disclosed in relevant notes to the financial       
statements. For all other financial instruments, the carrying amount            
approximates fair value.                                                        

Concentration of Credit Risk - Financial instruments which potentially          
subject the Corporation to concentrations of credit risk consist principally    
of temporary cash investments and trade receivables.                            

The Corporation places its temporary cash investments with high credit          
qualified financial institutions and, by policy, limits the amount of credit    
exposure to any one financial institution. Concentrations of credit risk with   
respect to trade receivables are limited due to the large number of customers   
comprising the Corporation's customer base, and their dispersion across many    
different industries and geographies.                                           

As of July 2, 1994, the Corporation had no significant concentrations of        
credit risk.                                                                    

Note J - Investing Activities                                                   
___________________________________________________________________________     

In June 1992, the Corporation entered into agreements to purchase common        
stock of Ing. Olivetti & C. S.p.A. ("Olivetti") and to form a strategic         
alliance with Olivetti. Pursuant to these agreements, as amended, the           
Corporation purchased a total of 98,533,000 shares of Olivetti common stock     
in fiscal year 1993 for a total investment of approximately $287,800,000. As    
part of the alliance agreement, as amended, Olivetti has agreed to purchase a   
minimum level of Alpha AXP products from the Corporation over a specified       
period of time.                                                                 

The Olivetti stock is recorded at $83,800,000. The remainder of the purchase    
price was recorded as an intangible asset to be amortized over a period not     
to exceed ten years. While the Corporation expects to generate significant      
revenues from the sale of Alpha AXP products to Olivetti in the long term, in   
fiscal year 1994, the sale of Alpha AXP products to Olivetti fell               
significantly short of levels called for in the alliance agreement. In the      
fourth quarter, the Corporation concluded that revenues and profits in the      
future, although significant, would continue below levels called for in the     
agreement. Accordingly, in the fourth quarter, the Corporation reduced the      
carrying value of the intangible asset by $116,000,000 to its expected net      
realizable value and included this amount as a charge to Selling, General and   
Administration (SG&A) expenses on the Statement of Operations. The remainder    
of the intangible asset will be amortized over a period not to exceed eight     
years using the greater of unit-volume or straight-line methods.                

At the end of fiscal year 1994, the investment in Olivetti stock had a fair     
value of $147,000,000. Subsequent to the end of the fiscal year, the            
Corporation sold all of its shares of Olivetti stock for approximately          
$147,500,000.                                                                   

On November 11, 1991, the Corporation signed an agreement with Philips          
Electronics N.V. of The Netherlands to acquire most of the Philips              
Information Systems Division ("Division"). The purchase price for the           
acquired business was equal to the net asset value of the business as at        
October 27, 1991, and was $146,387,000, net of cash acquired in the purchase.   
The fiscal year 1992 operating results and statement of financial position      
reflect the full consolidation of the acquired business as from October 28,     
1991, including purchase price adjustments made in the fourth quarter of        
fiscal 1992.                                                                    

The acquisition included the Division's activities for financial                
institutions, small and medium enterprises,image and document management        
systems and all related customer service activities. The acquisition has been   
accounted for as a purchase, and accordingly, the assets and liabilities have   
been recorded at their estimated fair value at the date of acquisition.         

The acquisition had no material effect on the total operating results for       
fiscal year 1992, the year in which it was acquired.                            

Revenue and operating results for the Corporation's Digital-Kienzle business,   
acquired in fiscal year 1991, fell significantly short of operating plan for    
fiscal 1994 and from results of prior years despite restructuring efforts and   
management changes in fiscal 1994 aimed at improving results. During the        
fourth quarter of fiscal 1994, plans for further restructuring actions to be    
taken in fiscal 1995 were finalized. The Corporation concluded that the         
discounted cash flow, including restructuring actions associated with the       
acquired business, will no longer support the carrying value of the             
unamortized goodwill. Accordingly, the unamortized balance of goodwill          
related to the acquisition of approximately $194,000,000 was written off as a   
charge to operations.  This was included in SG&A expenses on the Statement of   
Operations.                                                                     

Note K - Stock Plans                                                            
____________________________________________________________________________    

Stock Options and Awards - Under its Equity Plan, the Corporation has awarded   
restricted stock to certain officers and key employees. Under such Equity       
Plan and its Restricted Stock Option Plans, the Corporation has granted         
options to certain officers and key employees to purchase common stock at a     
price determined by the Board of Directors. Shares purchased under the plans    
are either subject to repurchase options and restrictions on sales which        
lapse over an extended time period not exceeding 10 years, or become            
exercisable ratably over periods of up to five years. In fiscal year 1992,      
certain options were granted under such Equity Plan which become exercisable    
ratably over five years, but only if the common stock achieves certain price    
performance criteria.                                                           

Information concerning activity during the three years ended July 2, 1994 was   
as follows:                                                                     

                                             Options Outstanding
_______________________________________________________________________       
                          Shares                         Average
                    Reserved for                           Price
                   Future Grants            Shares     per Share
_______________________________________________________________________       
June 29, 1991                  3,281,810       19,305,823    $    72.42       
Additional Shares                                                             
Available for Grant          1,950,123             -       $      -       
Options Granted               (2,901,830)       2,901,830    $    58.00       
Shares Awarded                  (623,490)            -       $      -         
Options Exercised                   -            (795,879)   $    29.73       
Options Cancelled                493,879         (493,879)   $    82.47       
Options Terminated              (428,994)            -       $      -         
_______________________________________________________________________       
June 27, 1992                   1,771,498      20,917,895    $    71.81       
Additional Shares                                                             
Available for Grant           1,950,123            -       $      -       
Options Granted                (3,737,045)      3,737,045    $    41.41       
Shares Awarded                   (277,650)           -       $      -         
Options Exercised                    -           (553,486)   $    27.67       
Options Cancelled               1,623,333      (1,623,333)   $    66.42       
Options Cancelled under                                                       
Repurchase Program            2,653,570      (2,653,570)   $   153.00     
Options Terminated             (3,362,938)           -       $      -         
_______________________________________________________________________       
July 3, 1993                      620,891      19,824,551    $    56.89       
Additional Shares                                                             
Available for Grant           2,032,347            -       $      -       
Options Granted                  (896,650)        896,650    $    23.07       
Shares Awarded                   (307,460)           -       $      -         
Options Exercised                    -           (106,612)   $    33.78       
Options Cancelled               2,243,356      (2,243,356)   $    52.08       
Options Terminated             (1,248,476)           -       $      -         
Regrant program:                                                              
Cancelled                      5,765,914      (5,765,914)   $    59.10      
Terminated                    (2,843,639)           -       $      -        
Regrant                       (2,328,910)      2,328,910    $    22.88      
_______________________________________________________________________       
July 2, 1994                    3,037,373      14,934,229    $    49.59       
_______________________________________________________________________       

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Note K - Stock Plans (continued)                                                
___________________________________________________________________________     

The excess, if any, of the fair market value of shares on the measurement       
date over the exercise price is charged to operations each year as the          
restrictions lapse.                                                             

In May 1994, the Board of Directors approved a program to offer employees of    
the Corporation (other than executive officers of the Corporation), the         
opportunity to exchange their outstanding stock options for new options to      
purchase a reduced number of shares of common stock at a per share exercise     
price equal to the fair market value of the common stock on the date the        
program was approved (the "Regrant Program"). Under the Regrant Program,        
outstanding options granted between 1985 and 1993 to purchase up to             
11,854,084 shares of common stock with an average exercise price of $59.43      
per share could be exchanged for new options to purchase up to 4,554,870        
shares with an exercise price of $22.88 per share. The new options vest over    
four years and have a seven-year term. As of July 3, 1994 and as reflected in   
the table above, options to purchase 5,765,914 shares had been exchanged and    
canceled for new options to purchase a total of 2,328,910 shares. As of July    
22, 1994, the last date for acceptance of the Regrant Program, options to       
purchase a total of 10,208,736 shares had been exchanged and canceled for new   
options to purchase a total of 3,969,630 shares. No compensation expense was    
reversed as a result of the Regrant Program. Future expense associated with     
options canceled, and not replaced by new options under the Regrant Program,    
will no longer be recognized, resulting in an expense reduction of              
approximately $31,000,000 over four years.                                      

In April 1993, the Board of Directors approved the repurchase of outstanding    
options to purchase up to 2.8 million shares of common stock granted to         
certain employees in fiscal year 1988 at an exercise price of $153.00 per       
share which represented a discount of $30.00 per share from the fair market     
value of the common stock on the date of grant. The original options to         
purchase 3.2 million shares were subject to restrictions lapsing and            
amortizing ratably over ten years. Optionholders were offered $3.00 per         
unexercised option share in return for the cancellation of the option. The      
repurchase price was determined after taking into account option pricing        
models, the opinion of an independent advisor and the financial and             
compensation objectives of the program. The Corporation repurchased             
approximately 2.7 million shares at a cost of approximately $8,000,000, which   
was charged to operations in fiscal 1993. In addition, the Corporation          
reversed compensation expense recorded in previous years of $31,843,000 with    
a corresponding reduction of additional paid-in capital.                        

Employee Stock Purchase Plans - Under the Corporation's Employee Stock          
Purchase Plans, all U.S. and certain non-U.S. employees may be granted the      
opportunity to purchase common stock at 85% of market value on the first or     
last business day of the six-month payment period, whichever is lower. Common   
stock reserved for future employee purchases aggregated 5,133,014 shares at     
July 2,1994. There were 6,938,772 shares issued at an average price of $23.72   
per share during the year ended July 2,1994; 6,404,574 shares issued at an      
average price of $28.38 per share during the year ended July 3,1993; and        
4,788,819 shares issued at an average price of $43.21 per share during the      
year ended June 27,1992. There have been no charges to income in connection     
with these Plans other than incidental expenses related to the issuance of      
the shares. Federal income tax benefits relating to such Plans, if any, have    
been credited to additional paid-in capital.                                    

Stock Option Plan for Non-Employee Directors - The Stock Option Plan for        
Non-Employee Directors provides for a one-time grant of an option to purchase   
5,000 shares of the Corporation's common stock to non-employee directors. The   
exercise price of an option is 100% of the fair market value per share of       
common stock of the Corporation on the date the option is granted. An           
aggregate of 100,000 shares of common stock are authorized for issuance under   
the Plan, of which 50,000 have been granted at an average purchase price of     
$49.01 per share. The options become exercisable at the rate of 20% per year,   
with credit given for past service. None of these options had been exercised    
as of July 2, 1994.                                                             

Note L - Stockholders' Equity                                                   
____________________________________________________________________________    

On January 21, 1994, the Corporation filed with the Securities and Exchange     
Commission a shelf registration statement on Form S-3 under the Securities      
Act of 1933, as amended, covering the registration of debt securities,          
preferred stock, depositary shares, and warrants to purchase equity and debt    
securities, in an aggregate amount of $1 billion. In March 1994, the            
Corporation issued and sold 16,000,000 Depositary Shares under the shelf        
registration statement, each representing a one-fourth interest in a share of   
the Corporation's Series A 8 7/8% Cumulative Preferred Stock (the "Series A     
Preferred Stock"), par value $1.00 per share. Dividends on the Series A         
Preferred Stock accrue at the annual rate of 8 7/8%, or $35,500,000 per year.   
Dividends of $10,650,000 were declared in fiscal 1994 commencing in March       
1994. At July 2, 1994, there were declared and unpaid dividends of              
$8,875,000. These dividends were paid on July 15,1994.                          

The Series A Preferred Stock was offered to the public at $100 per share ($25   
per Depositary Share) for a total of $400,000,000, leaving a balance of         
$600,000,000 available for future issuance under the shelf registration. The    
net proceeds of $387,000,000 from the Series A Preferred Stock offering is      
available for working capital and other general corporate purposes. The         
Series A Preferred Stock is not convertible into, or exchangeable for, shares   
of any other class or classes of stock of the Corporation. The Series A         
Preferred Stock is not redeemable prior to April 1,1999. On or after April      
1,1999, the Corporation, at its option, may redeem shares of the Series A       
Preferred Stock, as a whole or in part, for cash at the redemption price per    
share of $100 ($25 per Depositary Share), plus accrued and unpaid dividends     
to the redemption date. Upon dissolution, liquidation or the winding up of      
the affairs of the Corporation, the holders of the Series A Preferred Stock     
will be entitled to receive $100 per share ($25 per Depositary Share), plus     
accrued and unpaid dividends, before any distribution to holders of the         
Corporation's common stock.                                                     

The Corporation did not purchase any shares of its common stock during fiscal   
years 1994 and 1993. The Corporation purchased on the open market 3,014,083     
shares of its common stock at an aggregate purchase price of $185,292,000, or   
$61.48 per share, during the year ended June 27, 1992. All of the acquired      
shares were held as common stock in treasury, and subsequently issued to        
employees under the Stock Plans. The difference between the average             
acquisition cost of the shares and the proceeds from issuance is charged to     
retained earnings.                                                              

The Corporation adopted a Stockholder Rights Plan in December 1989 pursuant     
to which the Corporation authorized the distribution of one Common Stock        
Purchase Right for each share of outstanding common stock. Under certain        
conditions, each Right may be exercised for one share of common stock at an     
exercise price of $400, subject to adjustment. Under circumstances defined in   
the Plan, the Rights entitle holders to purchase stock having a value of        
twice the exercise price of the Rights. Until they become exercisable, the      
Rights are not transferable apart from the common stock. The Rights may be      
redeemed by the Corporation at any time prior to the occurrence of certain      
events at $.01 per Right. The Plan will expire on December 21, 1999, unless     
the Rights are earlier redeemed by the Corporation.                             

Note M - Subsequent Event                                                       
____________________________________________________________________________    

Subsequent to the end of the fiscal year, the Corporation and Quantum           
Corporation ("Quantum") signed an agreement providing for Quantum's purchase    
of the Corporation's magnetic disk drive, tape drive, solid state disk and      
thin-film heads businesses for $400,000,000, $70,000,000 of which is to be      
paid in the form of an interest-bearing note. The transaction includes the      
Corporation's interest in Rocky Mountain Magnetics, Inc., facilities in         
Shrewsbury, Massachusetts and Penang, Malaysia, and the lease of facilities     
in Colorado Springs, Colorado and Batam, Indonesia. There are approximately     
5,000 regular and temporary employees in the businesses being sold.             

The sale has been approved by the Board of Directors of both companies, but     
is subject to appropriate government approvals and other conditions. The        
transaction is expected to close shortly after October 1, 1994.                 

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                                                        · Enlarge/Download Table

Supplementary Information                                                                           

Quarterly Financial Data (unaudited)                                                                

                                                                                                    
____________________________________________________________________________________________________
                                                        Income/    Income/                          
                                                         (Loss)     (Loss)                          
                                   Total                 Before      After        Net        Income/
(in millions except            Operating      Gross      Income     Income    Income/      (Loss)per
 per share data)                Revenues     Profit       Taxes     Taxes1     (Loss)  Common Share2
____________________________________________________________________________________________________
                                                                                                    
For the year ended July 2, 1994                                                                     
Fourth Quarter                   $ 3,923     $1,175    $(1,673)   $(1,747)    $ (1,747)    $(12.64) 
Third Quarter                      3,259      1,101       (178)      (183)        (183)      (1.34) 
Second Quarter                     3,254      1,173        (69)       (72)         (72)       (.53) 
First Quarter3                     3,015      1,090       (100)      (103)        (154)      (1.14) 
                                 ___________________________________________________________________
Total Year                       $13,451     $4,539    $(2,020)   $(2,105)    $ (2,156)    $(15.80) 
____________________________________________________________________________________________________

For the year ended July 3, 1993                                                                     
Fourth Quarter                   $ 3,914     $1,576    $   120    $   113     $   113      $   .85  
Third Quarter                      3,454      1,373        (28)       (30)        (30)        (.23) 
Second Quarter                     3,689      1,514        (66)       (74)        (74)        (.57) 
First Quarter                      3,314      1,277       (250)      (260)       (260)       (2.04) 
                                 __________________________________________________________________ 
Total Year                       $14,371     $5,740    $  (224)   $  (251)    $  (251)     $ (1.93) 
___________________________________________________________________________________________________ 
<FN>                                                                                                 

1 Before cumulative effect of changes in accounting principles.                                     
2 Income/(loss) per share is computed independently for each of the quarters                        
  presented and therefore does not sum to the total for the year.                                   
3 Restated to reflect the adoption of SFAS No. 112 - Employers Accounting                           
  for Postemployment Benefits.                                                                      


Stock Information                                                               

The Corporation's common stock is listed and traded on the Chicago Stock        
Exchange, New York Stock Exchange, Pacific Stock Exchange, Montreal Exchange    
and several European stock exchanges. There were 77,722 shareholders of         
record as of July 2, 1994. The high and low quarterly sales prices for the      
past three fiscal years are as follows:                                         

                                                        1994
_____________________________________________________________________         
Fiscal Quarter                           High                     Low         
_____________________________________________________________________         
Fourth                                $30 5/8                 $18 1/4         
Third                                  38 1/8                  27 3/4         
Second                                 39 1/8                  34 1/8         
First                                  43 1/8                  35 1/4         
_____________________________________________________________________         
                                                        1993
_____________________________________________________________________         
Fiscal Quarter                           High                     Low         
Fourth                                $48 1/4                 $38 1/4         
Third                                  49 1/4                  32 3/4         
Second                                 40 5/8                  30 3/8         
First                                  44                      33 1/4         
_____________________________________________________________________         
                                                        1992
_____________________________________________________________________         
Fiscal Quarter                           High                     Low         
_____________________________________________________________________         
Fourth                                $54 7/8                 $33 1/4         
Third                                  65 1/2                  49 1/4         
Second                                 65                      48 1/2         
First                                  71 3/4                  53 7/8         
_____________________________________________________________________         

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Officers and Management                                                       
_________________________________________________________                     
*Robert B. Palmer                                                             
President and Chief Executive Officer                                       

Bernhard Auer                                                               
Vice President and General Manager, Personal Computer                       
Business Unit                                                               

Lawrence P. Cabrinety                                                       
Vice President, Components and Peripherals Business Unit                    

*R. E. Caldwell                                                               
Vice President, Digital Semiconductor                                       

Bobby A. F. Choonavala                                                      
Vice President; President, Asia Pacific                                     

*Charles F. Christ                                                            
Vice President and General Manager, Components Division                     

Harold D. Copperman                                                         
Vice President; President, The Americas                                     

Vincenzo Damiani                                                            
Vice President and General Manager,                                         
Accounts Business Unit                                                      
President, Digital Europe                                                   

William R. Demmer                                                           
Vice President, Software Business Group                                     

*Richard M. Farrahar                                                          
Vice President, Human Resources                                             

Samuel H. Fuller                                                            
Vice President, Corporate Research                                          

Charles B. Holleran                                                         
Vice President, Communications                                              

*Ilene B. Jacobs                                                              
Vice President and Treasurer                                                

Gail S. Mann                                                                
Assistant General Counsel, Secretary and Clerk                              

Robert E. McNulty                                                           
Vice President and Chief Information Officer                                

*Vincent J. Mullarkey                                                         
Vice President, Finance and Chief Financial Officer                         

*Enrico Pesatori                                                              
Vice President and General Manager, Computer Systems                        
Division                                                                    

*E. C. Mick Prokopis                                                          
Vice President and Corporate Controller                                     

*John J. Rando                                                                
Vice President, Multivendor Customer Services                               

Robert J. Rennick                                                           
Vice President and General Manager, Storage Subsystems Business Unit        

*Thomas C. Siekman                                                            
Vice President and General Counsel                                          

*William D. Strecker                                                          
Vice President, Advanced Technology Group and Chief Technical Officer       

Laurence G. Walker                                                          
Vice President and General Manager, Network Product Business Unit           

*"Executive Officer" under the Securities Exchange Act of 1934.               

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Directors                                                                     
________________________________________________________________________      

Robert B. Palmer                                                              
President and Chief Executive Officer                                         
Digital Equipment Corporation                                                 

Vernon R. Alden                                                               
Director and Trustee of several organizations                                 
Former Chairman, The Boston Company, Inc.                                     

Philip Caldwell                                                               
Senior Managing Director of Lehman Brothers Inc.                              
Retired Chairman of the Board and Chief Executive Officer,                    
Ford Motor Company                                                            
Director of several corporations                                              

Colby H. Chandler                                                             
Director of several corporations, Retired Chairman                            
of the Board and Chief Executive Officer, Eastman                             
Kodak Company                                                                 

Arnaud de Vitry                                                               
Engineering consultant and Director and                                       
Trustee of several organizations                                              

Robert R. Everett                                                             
Retired President of the MITRE Corporation                                    

Kathleen F. Feldstein                                                         
President of Economics Studies, Inc.                                          
and Director of several organizations                                         

Thomas P. Gerrity                                                             
Dean, Wharton School of the University of Pennsylvania                        
and Director of several corporations                                          

Thomas L. Phillips                                                            
Director of several corporations, Retired Chairman of the                     
Board and Chief Executive Officer, Raytheon Company                           

Delbert C. Staley                                                             
Director of several corporations, Retired Chairman of the                     
Board and Chief Executive Officer, NYNEX Corporation                          

[Photograph of members of Digital's Board of Directors]                       
Board of Directors, Digital Equipment Corporation:                            
Standing, left to right: Colby H. Chandler, Thomas L. Phillips,               
Kathleen F. Feldstein, Robert B. Palmer, Arnaud de Vitry, Delbert C.          
Staley. Seated: Vernon R. Alden, Thomas P. Gerrity, Robert R. Everett,        
Philip Caldwell.                                                              

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Committees of the Board                                                       
____________________________________________________________________________  

Audit Committee                                                               
Philip Caldwell, Chairman                                                     
Vernon R. Alden                                                               
Colby H. Chandler                                                             
Kathleen F. Feldstein                                                         

Compensation and Stock Option Committee                                       
Thomas L. Phillips, Chairman                                                  
Robert R. Everett                                                             
Thomas P. Gerrity                                                             
Delbert C. Staley                                                             

Nominating Committee                                                          
Arnaud de Vitry, Chairman                                                     
Vernon R. Alden                                                               
Colby H. Chandler                                                             
Thomas L. Phillips                                                            

Corporate Consulting Engineers                                                
_____________________________________________________________                 

Peter F. Conklin                                                              
Corporate Consulting Engineer                                                 
Layered Software Group                                                        

Daniel W. Dobberpuhl                                                          
Corporate Consulting Engineer                                                 
Semiconductor Engineering                                                     

Richard B. Grove                                                              
Corporate Consulting Engineer                                                 
System Software Group                                                         

Robert J. Hannemann                                                           
Corporate Consulting Engineer                                                 
System Hardware Group                                                         

Richard J. Hollingsworth                                                      
Senior Corporate Consulting Engineer                                          
Semiconductor Operations                                                      

Alan Kotok                                                                    
Corporate Consulting Engineer                                                 
Advanced Technology Group                                                     

Nancy Kronenberg                                                              
Corporate Consulting Engineer                                                 
System Hardware Group                                                         

Butler Lampson                                                                
Senior Corporate Consulting Engineer                                          
Corporate Research                                                            

Richard Lary                                                                  
Corporate Consulting Engineer                                                 
Mass Storage                                                                  

Jesse Lipcon                                                                  
Corporate Consulting Engineer                                                 
Vice President, OpenVMS Systems                                               

Alan G. Nemeth                                                                
Corporate Consulting Engineer                                                 
System Software Group                                                         

Mahendra Patel                                                                
Vice President and Corporate Consulting Engineer                              
Computer Systems Division                                                     

Jeff Schriesheim                                                              
Corporate Consulting Engineer                                                 
System Software Group                                                         

Richard Sites                                                                 
Corporate Consulting Engineer                                                 
Corporate Research                                                            

Robert E. Stewart                                                             
Corporate Consulting Engineer                                                 
System Hardware Group                                                         

William D. Strecker                                                           
Senior Corporate Consulting Engineer                                          
Vice President, Advanced Technology Group                                     
Chief Technical Officer                                                       

Robert M. Supnik                                                              
Vice President and Senior Corporate Consulting Engineer                       
Computer Systems Division                                                     

Charles P. Thacker                                                            
Corporate Consulting Engineer                                                 
Corporate Research                                                            

Gayn B. Winters                                                               
Corporate Consulting Engineer                                                 
Advanced Technology Group                                                     

Richard T. Witek                                                              
Corporate Consulting Engineer                                                 
Semiconductor Engineering                                                     

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Headquarters                                                                  
__________________________________________________________________            

Corporate Headquarters                                                        
Digital Equipment Corporation                                                 
146 Main Street                                                               
Maynard, Massachusetts 01754-2571                                             
Telephone: (508) 493-5111                                                     
Telex: 4430127 Digital ACT                                                    
Fax: (508) 493-8780                                                           

European Headquarters                                                         
Digital Equipment Corporation                                                 
International (Europe)                                                        
12 Avenue des Morgines                                                        
Case Postale 176                                                              
CH-1213 Petit-Lancy 1, Geneva                                                 
Switzerland                                                                   
Telephone: (41)-(22) 709-4111                                                 
Telex: 845-422593 DEC CH                                                      
Fax: (41)-(22) 709-4140                                                       

Asia Pacific Headquarters                                                     
Digital Equipment Asia Pacific Pte Ltd.                                       
300 Beach Road #39-00                                                         
The Concourse                                                                 
Singapore 0719                                                                
Telephone: (65) 299-7188                                                      
Fax: (65) 295-1296                                                            

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Investor Information                                                          
____________________________________________________________________________  

The Corporation's common stock (Ticker Symbol "DEC") is listed and traded on  
the:                                                                          

Chicago Stock Exchange                                                        
Montreal Exchange                                                             
New York Stock Exchange                                                       
Pacific Stock Exchange                                                        

Swiss Stock Exchanges of Zurich, Geneva and Basel; and the                    
German Stock Exchanges of Frankfurt, Munich and Berlin.                       

Unlisted trading privileges have been granted by the:                         

Boston Stock Exchange                                                         
Cincinnati Stock Exchange                                                     
Philadelphia Stock Exchange                                                   
Luxembourg Stock Exchange                                                     

The Corporation's Depositary Shares, each representing one-fourth of a share  
of the Corporation's Series A 8 7/8% Cumulative Preferred Stock (Ticker       
Symbol DEC PRA), are listed and traded on the New York Stock Exchange.        

The Corporation maintains an Investor Relations office to assist              
stockholders. Investors' inquiries are welcome, by telephone or letter.       
Financial community information and requests to be placed on the              
Corporation's mailing list should be directed to:                             

Director, Investor Relations                                                  
Digital Equipment Corporation                                                 
146 Main Street (MLO3-2/F41)                                                  
Maynard, Massachusetts 01754-2571                                             
Telephone: (508) 493-7182                                                     
Fax:(508) 493-7633                                                            

Requests for specific information are handled as follows:                     

Digital Equipment Corporation's annual report on Form 10-K for the fiscal     
year ended July 2, 1994, including schedules thereto, which is filed with     
the Securities and Exchange Commission, will be sent without charge           
upon written request. The Corporation's annual report, filings with the       
Securities and Exchange Commission, interim reports and additional            
information about the Corporation and its products can be obtained by         
addressing:                                                                   

Digital Equipment Corporation, Inquiry Section                                
c/o Moore Business Forms                                                      
Suite 100                                                                     
293 Boston Post Road                                                          
Marlboro, Massachusetts 01752                                                 
Telephone: (508) 229-4752                                                     

As a company, we have a tradition of achievement in protecting the            
environment and in ensuring the health and safety of our fellow employees.    
A copy of our Environmental, Health and Safety Annual Report can be           
obtained by writing:                                                          

Digital Equipment Corporation                                                 
Corporate Environmental Health and Safety                                     
111 Powdermill Road (MSO2-3/B16)                                              
Maynard, Massachusetts 01754-1418                                             

Inquiries of an administrative nature relating to stockholder accounting      
records, stock transfer, change of address, and employee purchases should be  
directed to:                                                                  

Digital Equipment Corporation                                                 
Investor Services                                                             
111 Powdermill Road (MSO1-1/L12)                                              
Maynard, Massachusetts 01754-1418                                             
Telephone: (508) 493-3703                                                     
Telephone: (508) 493-5213                                                     

Transfer Agent and Registrar                                                  
for Common Stock                                                              

First Chicago Trust Company of New York is the principal stock transfer       
agent and registrar, and maintains the stockholder accounting records.        
The agent will respond to questions on change of ownership, lost stock        
certificates, consolidation of accounts and change of address.                

Digital Equipment Corporation is also a stock transfer agent and registrar,   
and maintains employees stockholder accounting records.                       

A change of address should be reported promptly by sending a signed and       
dated note or postcard to First Chicago Trust Company of New York.            
Stockholders should state the name in which the stock is registered,          
account number, social security number (if available), as well as the old     
and new addresses.                                                            

First Chicago Trust Company of New York                                       
P.O. Box 2500                                                                 
Jersey City, New Jersey 07303-2500                                            
Telephone: (201) 324-0498                                                     

Depositary for the Series A 8 7/8% Cumulative Preferred Stock:                

Citibank N.A.                                                                 
Address correspondence to:                                                    
Citicorp Data Distributor                                                     
404 Sette Drive                                                               
Paramus, New Jersey 07653                                                     
(800) 422-2066                                                                

Eliminating Duplicate Mailings                                                
______________________________________________________________________        

To maintain more than one account, but eliminate duplicate mailings of        
annual and quarterly reports to the same address, send the labels             
(or a copy of the labels) from a company mailing to the Investor Services     
Department, P.O. Box 490, Maynard, Massachusetts 01754, indicating the        
names you wish to keep on the mailing list for annual and quarterly reports   
and the names you wish to delete. This will affect only these mailings;       
proxy materials will continue to be sent to each account.                     

Consolidating Accounts                                                        
_________________________________________________________________________     

To consolidate separate accounts into one account, contact the Investor       
Services Department, P.O. Box 490, Maynard, Massachusetts 01754, to obtain    
necessary forms and instructions.                                             

Auditors                                                                      
Coopers & Lybrand                                                             
One Post Office Square                                                        
Boston, Massachusetts 02109                                                   
Telephone: (617) 478-5000                                                     

Legal Counsel                                                                 
Testa, Hurwitz & Thibeault                                                    
53 State Street                                                               
Exchange Place                                                                
Boston, Massachusetts 02109-2809                                              
Telephone: (617) 248-7000                                                     

Customer Inquiries                                                            
__________________________________________________________________________    
Digital Equipment Corporation customers who have questions and/or problems    
relating to their accounts should contact U.S. Customer Relations at (800)    
332-4636.                                                                     

Digital believes the customer, market, and product information in this        
annual report is accurate as of its publication date. This information is     
subject to change without notice. Digital is not responsible for any          
inadvertent errors.                                                           

Digital will conduct its business in a manner that conserves the              
environment.                                                                  

The following are trademarks of Digital Equipment Corporation:                

Alpha AXP, ChannelWorks, DECathena, DEChub, DECpc, Digital, the DIGITAL       
logo, LinkWorks, OpenVMS, PATHWORKS, StorageWorks, and VAX.                   

The following are third-party trademarks:                                     

Hewlett-Packard is a registered trademark of Hewlett-Packard Company.         

IBM and AIX are registered trademarks of International Business Machines      
Corporation.                                                                  

Intel and i486 are trademarks and Pentium is a registered trademark of        
Intel Corporation.                                                            

Lotus and 1-2-3 are registered trademarks of Lotus Development Corporation.   

Macintosh is a registered trademark of Apple Computer, Inc.                   

Microsoft, MS-DOS, and Excel are registered trademarks and Windows and        
Windows NT are trademarks of Microsoft Corporation.                           

Novell and NetWare are registered trademarks of Novell, Inc.                  

OSF/1 is a registered trademark of Open Software Foundation, Inc.             

Sun is a registered trademark of Sun Microsystems, Inc.                       

UNIX is a registered trademark in the United States and other countries,      
licensed exclusively through X/Open Company, Ltd. X/Open is a trademark of    
X/Open Company, Ltd.                                                          

Printed in U.S.A. EA-C3688-87/94 09 23 225.0 MRO                              
Copyright 1994 Digital Equipment Corporation All Rights Reserved              
Printed on Recycled Paper

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Dates Referenced Herein and Documents Incorporated By Reference

		Referenced-On Page
This 10-K Filing	Date	First	Last	Other Filings

	6/27/92	34	51
	7/3/93	33	52	10-K/A
	7/4/93	29	43
	1/21/94	30	51	S-3
	4/2/94	50		10-Q
For The Period Ended	7/2/94	33	57	10-K/A
	7/3/94	51
	7/15/94	30
	7/22/94	51
	7/26/94	33
	9/1/94	4
	9/12/94	1
Filed On / Filed As Of	9/16/94			DEF 14A
	10/1/94	51		10-Q, 10-Q/A
	11/10/94	1		DEF 14A
	12/21/99	51

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Digital Equipment Corp · 10-K · For 7/2/94 · EX-13

Filed On 9/16/94 · SEC File 1-05296 · Accession Number 28887-94-22

Annual Report · Form 10-KFiling Table of Contents

EX-13 · Annual ReportExhibit Table of Contents

Dates Referenced Herein and Documents Incorporated By Reference

Annual Report · Form 10-K
Filing Table of Contents

EX-13 · Annual Report
Exhibit Table of Contents