Over the last two weeks, Compaq has taken the opportunity of using its Decus user conference and the 100 day anniversary of its Digital Equipment acquisition to trumpet what it claims is one of the first ever successful mega mergers.
The events have also given Digital users and the rest of the industry the chance to make up their own minds.
The first message to emerge from the "Compaq-ation" of Digital - as Digital customers refer to it - is that Compaq got a bargain - and a better one than it realised at the time as the company?s hidden assets slowly emerged.
However, that discovery may well secure the future of much Digital technology, which has traditionally been excellently engineered, but poorly sold and supported.
John Rose, Compaq?s enterprise systems vice president, says there are two factors that determine the success of a very large takeover, and this is the largest in the computer industry to date.
One is financial considerations and whether too much was paid for the acquired company, and the other is integration or how quickly and efficiently the purchase is carried out.
On the financial front, Digital insiders say Compaq got a steal. One long time employee said he was perpetually frustrated at the hidden assets Digital had, but always failed to exploit - and now they belong to Compaq for a knock down price.
Incidentally, two years earlier following similar negotiations, Compaq had offered to pay the same $8.4 billion asking price for Digital that it spent this time.
For its money, Compaq received nearly $3.5 billion in cash that Digital had made after selling various divisions such as its Alpha manufacturing and networking business. The accountants also found a juicy equation: Digital made losses...often, and Compaq made profits...nearly always. So, if one is offset against the other, the result is another $2 billion in tax write offs.
It could even be argued that if Compaq was lucky enought to get an Internet portal and search engine business in the shape of Digital?s Altavista unit that was only half as valuable as rival Yahoo, it would still only have spent around a billion dollars on Digital?s services, hardware, Alpha and customer base. Yahoo is currently valued at between $4-5 billion.
A steal indeed.
But even without the Altavista argument, Compaq?s Rose is still on solid ground when he says that his first measure of success - financial - has already been achieved.
So what about integration? The fate of the product lines has been moreorless sorted out, although customers are still waiting to see what Compaq will do with Digital's large collection of software tools, compilers and the like for its proprietary operating systems. Answers are expected by the end of the year.
Interestingly though, Compaq has already U-turned on its decision to stop manufacturing OpenVMS-based workstations - although only after a very vocal campaign by customers. The efforts of the surprisingly large installed base persuaded Compaq that there was enough of a market for at least one more model in mid 1999.
But Digital's PC and laptop ranges are almost completely disappearing, while its Alpha servers are becoming a high end addition to Compaq's Proliant Intel-based range, although they have a stronger focus on OpenVMS and Digital Unix than Windows NT.
Altavista is being used to reinforce Compaq's Web development program and Digital?s services division has become the service arm that Compaq never previously had in-house. Very few jobs have been lost there, although a number of people jumped ship to the competition during the takeover process.
Although the services arm was widely seen as the prize of the acquisition, Clive Longbottom, head of analyst company CSL Consulting Services, notes that it now creates potential conflicts of interest that did not exist when Compaq was simply a box shifter.
"Digital's services group could find itself in direct confrontation with parts of Compaq's channel as time goes forward. Providing outsourcing, systems management, consultancy and training, the services group will be a major tool as Compaq grows, but will also compete directly against existing Compaq partners as they move into solutions and services offerings themselves," he says in a research report.
Compaq is also two thirds of the way through shedding the 17,000 or so employees judged superfluous as a result of the acquisition, except in continental Europe, where union regulations have slowed the process down.
But a lot of infrastructure issues still have to be sorted out - for example, the UK organisation now has 42 buildings, but only three belonged to Compaq prior to the takeover, so many others are expected to go.
But, while the company would seem to have achieved a lot in the last 100 days, much of the groundwork had been prepared before the acquisition was complete. As a result, the integration has gone as smoothly and speedily as could be expected, and analysts have commented that the purchase has looked like an increasingly good proposition as the year has gone on.
They are keeping an eye on how quickly Compaq can generate a return on its investment, however.
So while Compaq would appear to be quite content with its acquisition and the progress so far, does the same apply to Digital?s customers?
Over the last two weeks, Digital's most vociferous supporters and critics have attended their respective annual user events in Paris and Los Angeles, plus many local events, to meet its new master.
But not everything has gone smoothly. Compaq's first mistake was the noticeable absence of Eckhard Pfeiffer, chairman and chief executive, from any of these events. He sent a short video only to the US event and as a result, many users felt snubbed. Pfeiffer was apparently at a General Motors board meeting, where he is a director, but as one user said, "What - all week?"
Tony Ioele, president of Decus US, admits that a lot of people were annoyed by Pfeiffer?s failure to attend, but says that Compaq's commitment to Digital?s users has been strong so far.
"Compaq knows it has an asset in the Digital customer base - it just has to work out how to get the most out of it. In return, we have to work out how you build an enterprise infrastructure in the Compaq style of computing," he adds.
He continues that the user base also accepts that, if Compaq carries out all its promises for OpenVMS, Alpha and Digital Unix, the technologies have more of a future now than they had if Digital had remained independent.
Terry Shannon, independent DEC watcher, believes there are a number of advantages to the Digital takeover. The combined company will have more clout with Intel and Microsoft than before. It has taken the top Windows NT slot from Hewlett-Packard, and Compaq?s backing has given Digital Unix much needed credibility. However, he notes, it may take some time for Compaq to adapt to being an enterprise player.
"A lot of Compaq people will have to change their mindsets. They are obsessed with the battles with Dell, but it is not Dell that will be the major threat, it is the mature enterprise vendors - Sun, IBM and HP," he attests.
On the Windows NT front, Compaq has set out its stall very clearly. It aims to offer the tightest integration on the market between its operating systems and NT, and to help NT scale across the enterprise. This, it admits, was the motivation - along with undisclosed financial terms - for giving Microsoft its Tandem acquisition?s Non Stop Kernel technology for integration into NT.
But most of the criticism since the takeover rests as much on what the company is not saying as on what it is. The future of its relationship with the Santa Cruz Operation (SCO) still remains unresolved and unclear given its stated strategy of making Digital Unix rather than SCO Unix its 64 bit offering of choice.
OpenVMS customers, while pleased that Compaq will continue to develop the operating system, remain unconvinced as to how far this support will go, particularly in relation to ISVs.
And Compaq also needs to clarify its channel strategy and work out how to avoid conflict in the services arena, particularly if it wishes to win the battle for the PC market with arch rival and direct vendor, Dell, which does not face any such issues.
Financial analysts also note that companies across all sectors often struggle when they hit $40 billion mark, due to problems related to scale and management. While Compaq generates about $40 billion now, it needs to clarify how it intends to achieve its stated aim of becoming a $50 billion organisation by 2000.
This could be an uphill struggle given current economic crises and the fact that the company will need to carefully manage the growth and absorption process of its acquisitions.
As Joe McNally, Compaq?s UK managing director, admitted last month, it may be difficult to get there by organic growth alone, so another acquisition may well be on the cards. Did somebody say SCO.......?
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