Compaq on a roll: Vendor aims to dominate enterprise computing through DEC acquisition

Communications carriers and other high-tech companies may have thought of Compaq Computer Corp. as just another PC manufacturer, but Compaq hopes to change that image with its acquisition of Digital Equipment Corp., announced last week.

"This $9.6 billion acquisition will accelerate our vision of becoming a leader in enterprise computing," said John Rose, Compaq's senior vice president.

The acquisition is the largest in the history of the computer industry and makes Compaq second in size to IBM.

"It's clear Compaq is making a play to be the next IBM, and to do that, they needed two things: sheer financial mass and a company with management support savvy," said Tom Nolle, president of CIMI Corp. "DEC has a lucrative support and outsourcing organization."

The deal combines Compaq's highly regarded personal computer franchise with DEC's technology services, including Alpha microprocessors, digital Unix and Windows NT enterprise systems, said Tom Jenkins, an analyst with Computing Consulting Group, Stamford, Conn.

Nolle expressed surprise at the timing of the merger. "Compaq is still digesting Tandem, and DEC just finished offloading its networking group," he said. Compaq acquired Tandem Computers in 1997.

Some telcos have operations support systems (OSSs) or back-office systems that run on DEC Vax computers. Will the new company continue to support OSSs?

"Vax is not actively sold any longer; it's become a legacy system," Jenkins said. "Since Tandem has intelligent network equipment, an OSS product and experience in marketing it, [Compaq] might consider letting Tandem take over that part of the business."

Compaq also announced it is part of a work group to develop digital subscriber line (DSL) standards along with Intel, Microsoft and the Bell regional holding companies. Last week, at least 20 other companies said they would support the work group (see list). However, Nolle said he doesn't expect Compaq to play a large role in that group.

"It was a move to preserve their credibility and show their interest in the process," he said. "But it's more of a titular role. The consortium is mostly promotional anyway. Their role is to yell 'hurrah DSL' and that's it."

Compaq's biggest challenge is combining its strengths with that of DEC and Tandem, Nolle said.

"Compaq has three system architectures to deal with now," he said. "They need to be careful so buyers don't get confused, and they will have to look at some convergence to reduce redundancy."

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