Compaq-Digital Merger Focuses on Enterprise

Even as Compaq Computer Corp.'s planned US$9.6 billion acquisition of Digital Equipment Corp. promises to bring a new contender into the enterprise computing ring with the likes of Hewlett-Packard Co. and IBM Corp., questions remain about what will happen to Digital's lower-end product lines, and some of its employees.

Even as Compaq Computer Corp.'s planned US$9.6 billion acquisition of Digital Equipment Corp. promises to bring a new contender into the enterprise computing ring with the likes of Hewlett-Packard Co. and IBM Corp., questions remain about what will happen to Digital's lower-end product lines, and some of its employees.

Compaq's principle gain in acquiring Digital is the company's enterprise computing systems and services business, said Eckhard Pfeiffer, Compaq CEO and president, at a press conference in London today.

"Compaq is no longer just a box company that ships desktops and portables," Pfeiffer said. With the acquisition of Tandem Computers Inc. last year and the upcoming merger with Digital, Compaq will be well-placed to offer full solutions, from systems to integration and support, to large enterprise customers, he said.

For example, Digital recently won a contract to supply the U.S. Postal Service with systems and support. "This is the kind of project where Compaq wasn't ready to step up to the table and say, 'We can do it'," Pfeiffer said.

But with the acquisition of Digital, Compaq plans to go after large-scale industry contracts. Compaq will gain Digital's 25,000-employee worldwide service workforce in the deal, as well as a foothold in the vertical markets of communications, financial services and manufacturing.

He also reiterated today that Compaq remains committed to the consumer and small-to-medium-size enterprise PC markets worldwide, an area where it has directly competed with Digital in the past. However, when asked what Compaq plans to do with Digital's PC design and manufacturing business, Pfeiffer said only that "it needs to be looked at."

One analyst predicted that Digital's PC product line may get the ax from Compaq if the merger is completed.

"Does it make sense for a company to run two parallel product lines?" said John Moroney, an analyst at London-based Ovum Ltd.

Usually, he said, the answer to such a question is no. Compaq is going to have to decide which is the stronger brand name in low-end PCs and servers and eliminate the other, he said. It is still hard to say what Compaq plans to do about Digital's PC products division, but employees in Digital's PC division definitely have something to worry about, Moroney said.

Pfeiffer also evaded questions about possible plans to cut back Digital's worldwide staff, saying only that "being a lean operation is a hallmark for Compaq." Compaq will need to keep Digital's large services staff in order to reach the company's new goals of being an all-in-one computing and services company, he said, but as to whether staff at the systems design and manufacturing level would stay or go, he said only that the company plans to have such matters sorted out by May.

When companies merge, Moroney said, the acquiring company usually focuses on cutting costs and streamlining operations, so the outlook is "pretty bad" for Digital employees in divisions deemed worthy of being pruned.

Digital, a long-standing name in the computer industry, is seen by many as a steady but old-fashioned company slow to change. Compaq, on the other hand, has been one to go after the latest computing trend with vigor, from sub-$1,000 PCs to clustered NT servers.

"Digital was stuck in their place and not willing to change," Pfeiffer said today. In order for a computer company to be successful today, it must constantly be evaluating and changing, he said. "You have to be very awake every day," he said.

"The giant of yesterday becomes the dinosaur of today," agreed Moroney. "Companies need to continually reinvent themselves."

Compaq, based in Houston, can be reached at +1-281-370-0670 or at http://www.compaq.com/.

Digital, in Maynard, can be reached at +1-978-493-5111 or on the Web at http://www.digital.com/.

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