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Whither Compaq networking?

After merging with systems providers Tandem and Digital, Compaq's commitment to networking has come into question.

When Compaq Computer (CPQ) spent hundreds of millions of dollars on two networking firms in 1995, most observers saw the moves as clear indicators that the PC giant sought to gain a significant chunk of the fast-growing market to interconnect computers.

But in the aftermath of multibillion-dollar mergers with systems providers Tandem Computers and Digital Equipment, Compaq's commitment to networking has come into question in some circles.

To counteract this perception, the computing company said it will start to give its networking gear a higher profile, starting with the announcement of new remote access equipment that takes advantage of its PC server systems and Microsoft's fast-growing Windows NT operating system. That rollout, announced this week and based on technology gained in the acquisition of Microcom last September, will be the first of many in the coming months, according to Compaq executives.

"We're dead serious about this business," said Edward Olkkola, vice president of business development and strategic planning for the company's communications products group. "We're not folding our tents. This isn't some side business at Compaq."

But for more than two years since Compaq has been in the networking business--selling server-based adapter cards, shared hub devices, remote access equipment, and dedicated switches--it has done little to drive down prices through its volume capabilities as expected, leaving that to the networking arm of chip powerhouse Intel and industry giants Bay Networks and 3Com.

"This is sort of a classic problem...A lot of companies that haven't done networking think it's a pretty straight-forward process when, in fact, the networking business can be fairly complex," said Esmerelda Silva, analyst with market researcher International Data Corporation.

"Companies like Compaq and Intel certainly have what it takes going forward, but it's not going to happen overnight," she added. "It's just one of those things where it takes years to build up a presence in this market."

Virginia Brooks, director of network research at the Aberdeen Group, noted that the company seems "aggressive and determined" in bringing the approach that gained them the dominant share in PCs and servers to networking products. "The problem is it's a little more complicated than that," she said. "I think they've got some work cut out for them."

In some cases, Compaq's zealous drive to become a dominant systems giant in the mold of Hewlett-Packard has come at the expense of its networking division. A strategic rollout of eight networking products was overshadowed this past June when the company purchased Tandem for $4 billion on the same day.

The $9.6 billion merger in the works with Digital only adds more fuel to the fire. "I think they've bitten off a big chunk," Brooks added.

The light at the end of the merger tunnel could be the channel presence Compaq will have once it integrates Digital's sales force into its present operation. That could provide the company with the opportunity to gain market share in several low-end niches, driving the growth that is expected from a firm that wants to reach $50 billion in revenue by the year 2000.

Today, Compaq isn't even on the radar screen in the numerous hub and switch niches that make up the local area networking market, according to IDC data.

However, company executives remain confident. Olkkola even noted that although the unit does not break out revenue, he believes the networking arm of the company has enough sales to make it the sixth biggest networking firm in the market.

From that perspective, "it's all in the way you look at it," Silva said.