Compaq ends Digital era

New York - What can $9.6 billion get you these days?

Last week it bought Compaq Computer Corp. some much needed respect with enterprise customers when the PC vendor agreed to pay that price for Digital Equipment Corp. Those billions also bought Compaq a major-league service and support organization and a boatload of new hardware and software.

Once a supplier of desktop-to-data center systems second only to IBM, Digital more recently has become better known for its service and support organization.

The division employs more than 15,000 people and generates $6 billion in revenue annually. It keeps existing VAX and Alpha-based machines up and running and has been dubbed the leading Windows NT systems integrator by Microsoft Corp. (see story).

While enterprise service and support is the single biggest draw for Compaq, which previously did not have a large-scale services arm, the computer giant also picks up a slew of Digital's hardware and software products.

Sorting through what assets will fit nicely into Compaq's overall plans will take 18 months, said Joe Barkan, research director with Gartner Group, Inc., in Stamford, Conn. "They have to dig through the Digital rubble piece by piece to see what fits and what needs to be thrown away," Barkan said.

Hidden gems

Digital's heavy investments in several NT-related areas should yield a big payoff for Compaq.

"Digital's got a whole NT software strategy that Compaq as a hardware company could never have cultivated on its own," Barkan said.

Digital's own OpenVMS clustering technology lies at the heart of the NT-based Microsoft Cluster Server. Microsofts and Digital's continued development of add-on products, which will make NT as reliable as OpenVMS, will only help Compaq's position in the enterprise.

Other hidden NT gems are Digital's Affinity and AllConnect programs. These lines comprise a set of software tools that allow OpenVMS and Digital Unix boxes, respectively, to interoperate with NT machines on the same network.

"We always thought it was odd that Digital would build such great tools to rush users off its own systems and onto NT boxes, said Dan Kusnetsky, an analyst with International Data Corp., in Framingham, Mass. "But that strategy looks much better now because they will be keeping the large customers in the family.

The AltaVista division of Digital - most widely known for its search engine products - could bring some unexpected gains to Compaq in terms of electronic commerce, Kusnetsky said.

Digital ships firewall and secure tun-nelling products under the AltaVista brand that could anchor an electronic commerce package from Compaq in the future.

Terry Shannon, an Ashland, Mass.-based analyst and author of the "Shannon Knows DEC" newsletter, said Digital's Storage Division is an underrated piece of the company's portfolio that Compaq should maintain.

Compaq will not be getting a network hardware division with this deal, because Digital last month sold most of that unit to Cabletron Systems, Inc. But sources close to the company said Compaq will be picking up approximately 100 engineers who are working on Gigabit Ethernet, Fast Ethernet and FDDI network adapters.

Weeding out

Observers expect quite a few Digital product lines to be discontinued.

Topping the list is Digital's line of Intel-based desktop and laptop PCs. Additionally, the recently announced line of NT-only DigitalServers is likely to be dropped by Compaq in favor of its own PC LAN servers.

"Digital's PC products completely overlap with Compaq's core business and you can kiss them goodbye," Barkan said.

On the software side, Digital's PathWorks LAN operating system will likely be dropped by Compaq soon, because it cannot compete with either NT or Novell, Inc.'s NetWare. Likewise, Digital's software for managing PC servers, called ServerWorks Manager, is likely to get the ax in favor of Compaq's Insight Manager.

Not so certain is the fate of the AlphaServer line. These machines support OpenVMS and Digital Unix. Digital itself has given mixed signals over its commitment to the AlphaServer line by partnering with Sequent Computer Systems, Inc. on a version of Digital Unix that runs on yet-to-be-released 64-bit Intel servers.

Additionally, Digital has handed manufacturing responsibilities and some patent rights for the Alpha chip over to Intel.

Senior Editors Robin Schrier Hohman and Jim Duffy contributed to this story.