Impending Digital layoffs leave customers wary

Reports that Compaq will lay off about 15,000 Digital employees after completing its planned acquisition underscores just how wrenching the next few months could be for Digital customers. The deeper-than-expected job cuts renew fears about the fate of several Digital products and business units and put Compaq's recent revenue struggles in the spotlight. They also bring to the surface simmering concerns about Compaq's plans to provide the level of support and services to which Digital customers have grown accustomed.

Reports that Compaq will lay off about 15,000 Digital employees after completing its planned acquisition underscores just how wrenching the next few months could be for Digital customers.

The deeper-than-expected job cuts, confirmed by sources at both Digital and Compaq, renew fears about the fate of several Digital products and business units and put Compaq’s recent revenue struggles in the spotlight. It also brings to the surface simmering concerns about Compaq’s plans to provide the same level of support and services Digital customers have grown accustomed to.

Layoffs at Digital have been imminent ever since Compaq announced its $US9.6 billion bid to purchase Digital in February. Digital’s per-employee revenue at the time of the bid was $240,500, compared with Compaq’s $736,000, according to research from Technology Business Research Inc. in Hampton, New Hampshire.

“Look for the cuts to come from just one company,” says a Compaq source, responding to reports the layoffs may include jobs at Compaq and Tandem.

The magnitude of the proposed cuts continues to make Brian Cuttler “cautious about the takeover, the future of OpenVMS and the fate of many products at Digital,” says the VMS systems manager at the State University of Albany in New York.

Compaq CEO Eckhard Pfeiffer and Digital CEO Robert Palmer have stressed over the past two months that the merged entity will continue to support and carry forward core Digital technologies such as its Unix, OpenVMS and Alpha.

But the depth of the layoffs, which represent about 28% of Digital’s 54,000-person workforce, will make it hard for those units to remain untouched, says Terry Shannon, editor of “Shannon Knows DEC,” a newsletter in Ashland, Massachusetts. Most of the cuts will come from the administration ranks and parts of the direct sales force, but some may have to come from the product groups, he warns.

“If Compaq were to retain Digital’s core engineering staff, I would take that as a very positive sign” of continued support for many of Digital’s core technologies, Cuttler says.

But “the bigger issue right now is how exactly Compaq plans to directly [support] customers,” says Joseph Pollizzi, president of the Digital Equipment Computer User Society and head of the science and engineering systems division of the Space Telescope Science Institute in Baltimore.

As a Digital customer, the institute spends a relatively small amount, $1 million, on Digital products annually but still has a direct representative from the company. “The question now is whether we have to initiate the call and wait for someone from Compaq to answer. That may be a great way to sell PCs, but not enterprise servers,” Pollizzi says.

Compaq, which has made no secret of wanting to compete head-on with IBM as an enterprise player, is particularly interested in Digital’s 22,000-person worldwide services business.

The Houston-based PC maker is expected to address service questions when it announces a merged worldwide services organisation as early as July 1, according to a Digital channel source, who requested anonymity. But full details won’t become clear until later this year, the source says.

That’s because Compaq currently relies on several third-party channel partners and service providers, including Digital. After the merger, Compaq will have to figure out a way to split service delivery between its services organization and those of its partners, a process that could take time and create some channel conflict.

Compaq’s planned acquisition has already caused Dell Computer and Corp. to pull out of service partnerships they had with Digital.

In a proxy statement sent to Digital shareholders, Compaq said it would set aside between $1.5 billion and $2 billion to cover consolidation costs. The unspecified consolidations are likely to reduce Digital’s sales, general and administrative costs by half after the merger, the statement said.

(Senior editor Craig Stedman contributed to this story.)

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