Tech Industry

FAQ: Compaq buys, Digital sells

Before being bought, Digital trimmed subsidiaries in an effort to get smaller. Compaq Computer, meanwhile, keeps acquiring companies to bulk up.

Digital sheds while Compaq gains weight.

For months, Digital Equipment has been trimming subsidiaries in an effort to get smaller. Compaq Computer, meanwhile, has acquired companies in a effort to bulk up.

What does Compaq want?
Specifically, service employees. Unlike IBM or HP, Compaq does not employ an army of certified computer technicians to service large multinational customers. See special coverage: Compaq's conquest Instead, it must outsource this work. Service divisions have increasingly accounted for earnings with computer vendors and maintained relationships with clients. With this merger, it effectively becomes the third leg of a "Big Three" in computing. Compaq also will get its hands on high-end Unix server technology.

What happens to Digital's Alpha customers?
They fade away. While Compaq and Digital have both pledged to support corporate clients that use computer systems based around Digital's Alpha technology, observers believe commitment to maintain support for the technology will wane over time. Instead, Compaq will shift its emphasis to Merced, the upcoming 64-bit technology from Intel.

Will Digital employees get laid off?
Probably. Compaq is expected to eliminate redundant sales and marketing divisions, as well as phase out Digital's own PC business. In addition, Compaq has a habit of turning over its upper management so it remains doubtful whether Digital CEO Robert Palmer will be around much longer.

What is the goal here?
Compaq wants to become a $50 billion computer powerhouse by 2000. With this acquisition, its revenue jumps to approximately $37 billion, second in size only to IBM.

Digital sells
Aug
1997
Sells printer business to Genicom
Oct
27
Settles massive patent infringement suit with Intel. Agreement worth approximately $1.6 billion to Intel and includes sale of $700 million chip plant in Hudson, Massachusetts.
Nov
25
Sells network product division to Cabletron for $430 million in cash and stock.
Jan
26
January 26: Sells the rest to Compaq for $9.6 billion in cash and stock.

Digital reported $3.32 billion in revenue and $78.4 million in profit for its second fiscal quarter 1998, which ended in December. The same quarter the year before, Digital reported revenues of $3.36 billion and earnings of $31.9 million.

Compaq buys
Jul
1997
Buys Tandem for $3 billion.
Jan
26
Devours Digital for $9.6 billion.

Prior to mergers, Compaq's annual revenue came to approximately $18 billion. Combined revenues of Digital and Compaq in 1997 amount to $37.5 billion.