Digital may lay off up to 15,000

Compaq Computer's bid to acquire Digital may result in massive layoffs at Digital, according to a source close to the companies who declined to be identified. The number seems especially high given comments this week by Compaq CEO Eckhard Pfeiffer that Compaq would continue to support Digital's Alpha processor, Digital Unix, and other products. The only Digital product which Pfeiffer seemed unenthusiastic about was AltaVista. But one analyst says the final toll could hit 25,000.

Compaq Computer's bid to acquire Digital may result in massive layoffs at Digital, according to a source close to the companies who declined to be identified.

In addition, the acquisition will result in a restructuring charge of $US1.5 billion to $2 billion, according to a proxy statement filed by Digital with the Security and Exchange Commission (SEC) today.

Digital will hold a June 11 meeting seeking shareholder approval of the acquisition, the statement said.

Compaq announced in January its intent to buy Digital for US$9.6 billion. Digital has been battling back to profitability after a number of tough years. Several of its assets are particularly attractive to Compaq, including its worldwide services organisation, Alpha microprocessors, and OpenVMS, Digital Unix and Windows NT systems and software, Compaq said in a statement in January.

Laying off 15,000 Digital employees "seems pretty draconian," said Terry Shannon, editor of Shannon Knows DEC, a newsletter based in Ashland, Massachusetts.

The number seems especially high given the comments made yesterday by Eckhard Pfeiffer, Compaq's president and CEO at a Digital announcement yesterday in New York introducing new servers that Compaq would continue to support Digital's Alpha processor, Digital Unix, and other products. The only Digital product which Pfeiffer seemed unenthusiastic about was AltaVista, according to Shannon.

"I wonder how Compaq is going to be able to reduce the headcount by 27%," without killing off any significant core product lines, Shannon said.

But another analyst said that Digital layoffs could eventually go much deeper. Pfeiffer was trying to convince Digital's customers that its products and operating systems would be supported, but that is different from moving forward with the technology, said Jon Oltsik, senior analyst at Forrester Research Inc. in Cambridge, Massachusetts.

"As Compaq makes some technology decisions down the line ... I think that the (Digital) layoffs could be much steeper, up to the 25,000 range," Oltsik said.

Compaq must avoid the "analysis paralysis" of pondering the companies' technologies at length to try to understand how to get the best of both, Oltsik said.

"I don't think it works that way. I think you have to chose an architecture (and) point the remaining people at it," he said. "It's incumbent upon Compaq to pick one and go with it."

If Compaq does in fact pick one technology wherever there is overlap, Digital will be particularly vulnerable, since much of its business over the last couple of years has been based on Intel Corp.'s architecture, Olsik said.

"Compaq can do (Intel) in their sleep, so there's no reason to keep any kind of Digital presence at all in that market," Olsik said.

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