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Compaq wins Ericsson server contract

The phone company agrees to buy $500 million to $1 billion of the computer maker's servers in the next four years to build the heart of its next-generation telecommunications network.

Ericsson has agreed to buy $500 million to $1 billion of Compaq Computer servers in the next four years to build the heart of its next-generation telecommunications network.

Under the deal, Ericsson will buy Compaq servers, software and services for the high-speed switches that connect telephone callers, supporting either cell phones or those plugged into the wall, the companies said.

It's the first time Compaq has made it this far into a telecommunications company, said Raul Rodriguez, vice president of marketing for the company's high-end server group. "This is the first time we're really driving the core switch," he said.

The deal is an important win for Compaq, whose servers using Alpha chips are technologically respected but have not achieved the prominence of comparable servers from Sun Microsystems, IBM and Hewlett-Packard. Through Compaq's acquisitions of Tandem Computer and Digital Equipment, however, the company inherited a solid position in the telecommunications market.

Though Rodriguez declined to say how much of Compaq's high-end server revenue comes from telecommunications customers, he said 40 percent is a "good estimate."

Last year, Compaq consolidated several groups into a single Compaq Telecom organization to focus specifically on the telecommunications market, a high-technology sector with a huge demand for computing hardware but that also has little tolerance for faulty equipment.

Sweden-based Ericsson, with offices in 140 countries, sells cell phones and operates telecommunications networks.

Ericsson is best known as the world's No. 3 maker of wireless phone handsets, trailing European rival Nokia and Motorola. The company makes a variety of communications equipment products but primarily hopes to ride the growing interest in wireless voice services and mobile high-speed Internet devices.

Wall Street is watching the handset makers closely amid concerns about parts shortages, production problems and competition from Korean and Japanese low-cost handset makers. Ericsson is set to report quarterly financial results Oct. 20.

Rodriguez declined to say how much of the Ericsson revenue would be through products and how much through services, but he said services were a key part of the deal. In December 1999, Ericsson awarded Compaq a services contract to take over the computer infrastructure used by its 40,000 employees.

But Compaq faces heavy competition, in particular from Sun, the top Unix server seller, which has an aggressive push to make its way into the telecommunications market.

The Compaq servers at Ericsson will use Compaq's Alpha chips and its Tru64 Unix operating system on "CompactPCI" servers, a standard for splitting computing tasks across several processors that are on circuit boards that can be swapped out without shutting the server down.