Digital takes Compaq into enterprise

NEW YORK--Compaq Computer will use newly acquired Digital Equipment to make a push into 64-bit computing while delving into the services industry, company executives said here this morning.

The day after completing its purchase of Digital, Compaq CEO Eckhard Pfeiffer laid out details of his company's plans for the once-beleaguered firm.

Chief among them: Compaq says it will support Digital's 64-bit Alpha microprocessor architecture, notwithstanding its close ties to Intel. The chip giant is scheduled to release its own 64-bit chip, code-named Merced, in 2000.

"I've met with a lot of Digital customers the past few months, and I have made a commitment that Compaq will continue to support the Alpha server," Pfeiffer said.

Compaq, the nation's largest PC manufacturer, also said it grabbed Digital so that it could compete more effectively for the corporate server market and the lucrative services business. Although considered one of the leaders in Unix computing systems and processor technology, Digital had been in a sales and earnings slump during the past few years, especially relative to its competitors.

Houston-based Compaq made its bid for the Maynard, Massachusetts-based enterprise computing and services giant in January. The $9.6 billion deal cleared its final hurdle yesterday when it gained the required approval of more than two-thirds of Digital stockholders.

Compaq will pay about $4.5 billion in cash and issue 141 million shares of stock to cover the transaction. Digital shareholders will receive $30 in cash and 0.945 shares of Compaq stock for each share of Digital stock.

At today's Wall Street press conference, Pfeiffer said Digital's Alpha servers will be a pivotal piece of Compaq's strategy to gain market leadership in the 64-bit computing environment. Currently, 64-bit computing is relegated to the Unix world, but it is also the platform Microsoft is using to develop a 64-bit version of its Windows NT operating system.

Compaq is hoping to sell the Alpha servers to companies running "power-hungry" applications such as data warehousing, technical computing, and the burgeoning Internet commerce market.

In addition, the hardware maker also is putting Digital's extensive services network to greater use, not only supporting Alpha servers but also taking on the lucrative packaged applications implementation and support market. Pfeiffer said the plan is for Compaq to become a leading services company for the packaged application industry, implementing and supporting much of the infrastructure and operations management surrounding such large business process automation systems as SAP, Oracle, PeopleSoft, and Baan.

"This is an area where we have the opportunity to change the landscape," Pfeiffer said. "We can lead in the planning, designing, and deploying of enterprise [systems] through our global services and support. Customers want a single source of accountability. They will get it with Compaq global services and extensive partnerships."

Compaq is launching in the next few months an online advisory site for packaged applications. Called ActiveAnswers, it's to be an online library of tools and methods for implementing packaged applications.

"The importance of service is represented that by year 2002, $5 out of every $10 spent on information technology will be spent on services," said John Rando, vice president of Compaq's services. "We want to grow to be a $15 billion tier-1 service provider by 2002. There is huge potential for growth in the market."

Rando added the services division will concentrate on three areas: network and system integration, operations management, and support services.

Compaq also is shuffling its upper management to align its internal operations around the new businesses it is gaining with the Digital purchase. Not included in the lineup will be Digital CEO Robert Palmer, who is retiring once the merger is completed.