There goes the neighborhood

By Linda Musthaler

O ver the past decade, I've watched with great interest as Compaq, the PC company thats literally in my Houston backyard, has transformed itself into one of the world's largest computer vendors. Currently ranked No. 5 in the world, Compaq will leapfrog into the No. 2 spot when its acquisition of Digital gets the official go-ahead, probably this summer.

The acquisition came as little surprise, as Compaq and Digital have attempted to consummate this marriage before. In fact, Compaq already uses Digital to fulfill many of its enterprise service and support agreements around the world. Compaq couldn't build its own service business fast enough, so buying an experienced provider looked like the best option.

Most analysts agree this deal is good for both Compaq and Digital. Through the acquisition, Compaq rounds out its product and service offerings, greatly enhancing its ability to compete for enterprise-level business. Digital has faced financial uncertainty for several years, and Compaq should prove to be its white knight. Together, they have great synergy that will make the combined company a force to be reckoned with.

Corporate customers should derive plenty of benefits from this merger, as well.

Customers should see a marked improvement in the level of "touch" they get from the post-merger company. Digital brings thousands of seasoned account executives and service representatives to the party, so customers large and small should get more attention. Especially important are Digital's 1,800 Windows NT-certified systems engineers and 3,000 Unix specialists, who bring a wealth of experience in integrating and optimizing enterprise applications. What's more, these employees are all over the world, vastly improving Compaq's global reach.

While current Digital customers may fret that their fate could suffer in the hands of Compaq, I say it should improve. Compaq's deep pockets and enterprise focus should breathe new life into Digital's high-end product lines, including Digital Unix and OpenVMS. Many believe it's a foregone conclusion that Digital's PC product group will disappear, but Compaq's PC division offers better products, anyway.

Furthermore, the deal should spur competition and drive prices down. A well-rounded Compaq can compete more effectively against IBM and Hewlett-Packard, the only other computing companies to offer a full range of products and services. Customers seeking a soup-to-nuts solution can pit one company against another to get the best possible deal.

As for prices, Compaq CEO Eckhard Pfeiffer boasts that Compaq - without Digital - already enjoys competitive pricing from its suppliers, allowing Compaq to lower prices while sustaining profits. With the acquisition of Digital, Compaq will have additional leverage to encourage even lower prices from its supply chain. The customer clearly will be the winner here.

The new, mightier Compaq also should have more leverage with its two main business partners, Microsoft and Intel, and the myriad independent software vendors (ISV) that make a living off the Wintel market.

Today, Compaq and Digital enjoy close relationships with Microsoft. Operating as one company, they will collectively have more Windows NT integration experience than any other computer maker. Compaq's No. 2 worldwide sales position should make Microsoft and other ISVs even more interested in working hand-in-hand with it.

With the acquisition of Digital's Alpha microprocessor business, Compaq's relationship with Intel grows more complex. Last year, to settle a lawsuit, Intel purchased Digital's chip manufacturing operations, licensed the Alpha patents and agreed to continue to manufacture the processor for several generations.

The agreement is expected to hold up under Compaq's ownership of Digital.

But ownership of the Alpha technology gives Compaq an ace in the hole. While Compaq's current road map takes an Intel path into the realm of 64-bit computing, having Alpha gives Compaq some alternatives for its high-end servers. If nothing else, Alpha should give Compaq some leverage with Intel for negotiating future deals.

All things considered, the acquisition will benefit corporate customers in the long run - if Compaq and Digital don't get bogged down by the details of forming one cohesive company out of two.

Merging the product lines is easier than merging the people. Since acquiring Tandem last summer, Compaq has done a good job of integrating Tandem's products and employees, but Digital is a larger beast. What's more, Compaq and Digital have competed on many battlefields. It will take a while to get everyone marching in the same direction.

In the meantime, I'll be watching out my back window as the ever-expanding Compaq campus takes over the neighborhood.

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