Digital buy creates juggernaut

Compaq is preparing to catapult itself from number seven to number two in the New Zealand market as the US-based company mounts its bid to acquire Digital Equipment. Compaq has long said it wants to be in the top three worldwide - and the proposed $9.6 billion acquisition will place it at No 3, behind IBM and Hewlett-Packard. Compaq New Zealand general manager Robin Paterson says the deal would potentially put Compaq at number two in the local IT market. "That would be after IBM, and we think we'd be very close to IBM."

Compaq is preparing to catapult itself from number seven to number two in the New Zealand market as the US-based company mounts its bid to acquire Digital Equipment.

Compaq has long said it wants to be in the top three worldwide — and the proposed $9.6 billion acquisition will place it at No 3, behind IBM and Hewlett-Packard.

Compaq New Zealand general manager Robin Paterson says the deal would potentially put Compaq at number two in the local IT market. “That would be after IBM, and we think we’d be very close to IBM.”

Digital New Zealand managing director Sue Leikis agrees that the resulting company would probably be number two in terms of revenue.

“However, if you start to look at market share in the Intel space, Compaq today has number one position so you would start to see significant dominance from a combined company.”

IDC New Zealand general manager Graham Penn confirms the combined revenues of Compaq, Tandem (which Compaq acquired last year) and Digital will put the new company into the top three IT vendors in New Zealand, probably at number two. IBM has the top slot while EDS challenges for number two.

“By acquiring Digital, Compaq will leap over NEC and Fujitsu in terms of world IT. In New Zealand, Compaq is about number seven and will pass Fujitsu, HP and Unisys.”

Penn points out that as each company has a different end to its financial year, (Compaq in December, Digital in June and Tandem in September) and with IBM and EDS (both in December) yet to reveal their results for 1997, it will be another 12 months before positions are concrete.

“However, if you’re talking about delivery of product, Compaq could be the largest. A fair chunk of IBM’s and EDS’s revenues are from services.”

However, apart from the acquisition of Digital’s high-end 64-bit Alpha chip technology, its high-end VMS servers and its Unix workstations, it’s the gain of Digital’s services business that will give Compaq additional credence among large corporate accounts. Worldwide Digital’s service division employs 21,000 people and accounts for 45% of its revenue.

“There are two main reasons for the acquisition,” says Penn. “It extends Compaq’s base beyond commodity hardware. It gets the company into services around the world. Digital is already Compaq’s third-party service supplier so they already have a working relationship. In order to convince enterprise companies Compaq needed to put into place the next level of client support and Digital already has that. It would have taken Compaq three or four years to put it together itself — it’s cheaper to buy it.

“In addition Compaq will acquire Digital’s 64-bit Alpha technology. Under a recent agreement Intel will build Alpha chips for the next three years. After three years Compaq will have to decide whether to continue with the Alpha. They might decide not to but in the meantime they will have gained experience with 64-bit technology.”

Questions over whether the companies will merge or not, whether there will be staff redundancies are premature, according to both Leikis and Paterson. Compaq New Zealand now has a staff count of 80, while Digital has 250 employees.

Says Leikis, “The initial intelligence is that we will be a wholly owned subsidiary of Compaq. Initially I don’t see that changing. If there is any merger it will certainly take time.

“The main directive has been business as usual,” says Leikis. “We’ve got some fairly aggressive revenue and profitability objectives for Q3 and Q4.

“The main feedback from partners and resellers is that they don’t see anything changing in the short term.”

q Compaq New Zealand’s revenue for 1997 rose to $117 million compared with $105 million in 1996, representing 11.5% growth. This compares with Compaq’s worldwide sales, which grew to $US24.6 billion last year after reaching $US20 billion in 1996.

Compaq New Zealand general manager Robin Paterson is predicting another bountiful year ahead as it seeks to expand into new territories and absorbs last year’s Tandem acquisition. In particular, the small and medium-sized business sector represents a massive market opportunity, he says.

Paterson’s 1997 growth prediction for the company was remarkably accurate — he had forecast 16% but he final figure is expected to come in at 16.5%. This compares with 14.6% in 1996 and represents a 13% growth in New Zealand.

Paterson’s forecast for the next 12 months is not so optimistic — only 2% growth for the company and 6% for the PC market. However, he sees opportunities in the corporate and consumer sectors as well as the major opportunities in the small and medium-sized business sectors and new growth at the high end with Tandem products.

Tandem staff are being relocated to Compaq’s premises in Auckland and Wellington, although they will continue to operate as a direct sales team.

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