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Compaq invests to boost Windows 2000 server plans

The consumer PC leader takes a major, new step in its effort to make Intel-based servers bigger and better, signing a deal with Stratus Technologies.

Compaq Computer has taken a major, new step in its effort to make Intel-based servers bigger and better, investing in Stratus Technologies and signing a deal to sell computers based on Stratus' high-end designs.

Stephen Kiely Intel and DB Capital Partners, a part of Deutsche Bank, joined Compaq in the $115 million funding round, Stratus chief executive Stephen C. Kiely said Wednesday. The company, which Kiely described as "very profitable," said the deal increased Stratus' valuation and moves it a step toward an initial public offering.

Maynard, Mass.-based Stratus isn't the only company to benefit from interest in more powerful or less crash-prone Intel servers, which for most of their history have been consigned to lower-end tasks than more expensive Unix servers and mainframes. Compaq also signed a deal to sell high-end 32-processor Intel servers designed by Unisys.

Hewlett-Packard, one of Compaq's biggest competitors, also is working to strengthen its Intel servers. It struck a deal to sell Unisys' 32-processor ES7000 systems and licensed a high-end server design from Stratus competitor Marathon Technologies.

Stratus builds computers that have redundant internal components such as memory, network cards and CPUs. If the primary component fails, its backup immediately takes over and operates until a replacement part is installed.

Stratus' high-end machines currently use Hewlett-Packard's PA-RISC CPUs, but the company is adding a new product based on Intel chips and Microsoft's Windows 2000 operating system.

The new Intel system will be cheaper, appeal to new customers, and sell in higher volume, the company said. Eventually the new systems will become the most important part of its product line. The systems are being tested and will become generally available in March or April, Kiely said.

Compaq doesn't plan to sell Stratus-built computers with a Compaq logo glued to the outside but rather will incorporate Stratus technology into its own computer designs, said Vince Gayman, director of high-availability server marketing at Compaq.

Those new Compaq systems likely won't arrive until 2002, he said.

A key part of Stratus' switch to "Wintel" designs is licensing its hardware to other, better-known companies. That effort began in June, when the company signed a deal with NEC.

The deal with Compaq is a two-way exchange, as Stratus will get access to some of Compaq's technology as well, Kiely said. Though Compaq and Stratus haven't yet decided what that technology might be, Stratus is interested in having access to Compaq's broad range of hardware such as network cards and stand-alone storage systems, he added.

Because most of the Stratus fault-tolerant architecture works through specialized hardware, it's not too difficult to accommodate various operating systems such as Linux or Solaris, Kiely said. But for now, the company will stick with Windows 2000 for the Intel-based servers.

"In the short term, there's a huge opportunity with Windows 2000," he said. "For us it would be somewhat defocusing to look beyond the Windows 2000 environment."

Curiously, Stratus' biggest competitor is Compaq, which makes a high-end Tandem server line that uses redundant hardware components to achieve fault-tolerance. But while the Tandem design competes with Stratus' products, the new Intel-based Stratus servers are in a lower-end class, the companies said.

Given the breadth of computer corporations' product lines, "It's difficult to cooperate in our industry" on one product without competing with another, Kiely said.

"We don't see it as an issue," Gayman said. "We don't anticipate this being any kind of conflict or overlap."

Under the Stratus transaction, the investors will buy stock from Stratus' majority shareholder, Investcorp, the companies said. The deal is expected to close Feb. 1, subject to regulatory approvals.