Over the last two weeks Compaq took the opportunity of major Digital user events and the 100 day anniversary of the acquisition to trumpet what it sees as one of the first successful mega mergers. Digital users and the rest of the industry have also had a chance to make their own judgements.
The first message emerging from the "Compaq-ction", as Digital customers refer to it, was that Compaq got itself a bargain in Digital - a better one than it realised at the time, as it has slowly discovered Digital's hidden assets. In the process that discovery may have secured the future of many of Digital's cleverly developed but poorly sold and supported technologies.
John Rose, enterprise systems vice president, says there are two factors which determine the success of a very large - this is the largest in the computer industry to date - takeover: financial - whether too much was paid for the acquired company; and integration - how quickly and efficiently it is carried out.
On the financial front Digital insiders say Compaq got a steal. One long time employee said he had been perpetually frustrated at the value Digital had locked inside but always failed to use - now it belonged to Compaq at a knock down price. The same price incidentally that Compaq was going to pay two years earlier before the deal fell through.
The final price paid was $8.4 billion. For that Compaq got nearly $3.5 billion in cash that Digital had sitting around from sales of various divisions, such as Alpha manufacturing and its networking business. The accountants also found a juicy equation: Digital made losses....often....Compaq made profits....nearly always. Set one against the other and you've got another $2 billion in tax write offs.
For the sake of argument, if in Altavista Compaq got an Internet portal and search engine business only one half as valuable as its similar competitor Yahoo - valued currently at more than $4-5 billion - that means Compaq got the services, hardware, Alpha and customer base of Digital for around a mere billion dollars.
A steal indeed.
Even without the Altavista argument, John Rose is on solid ground when he says that his first measure of success, financial, is already achieved.
So what about the integration? The product lines are pretty much sorted, although Digital customers still wait to see what Compaq is going to do about Digital's large collection of software - tools, compilers and so on - for its proprietary operating systems. Those answers are expected by the end of the year.
Interestingly though Compaq has already U-turned on one decision to stop producing OpenVMS workstations - although only after a very vocal campaign by customers. A surprisingly large customer base for this product range persuaded Compaq there was enough of a market for at least one more model in mid 1999.
Digital's PC and laptop ranges are almost completely disappearing while the Alpha servers become a high end addition to Compaq's Proliant Intel-based range, but focused on OpenVMS and Digital Unix more strongly than Windows NT.
Altavista is being kept to reinforce Compaq's Web software development program. The services division simply becomes the services arm Compaq never had in-house. Very few jobs are going there although it has lost a number of people to the competition during the takeover process.
Although the services arm was seen as the prize of the acquisition, Clive Longbottom, head of analyst company CSL Consulting Services notes that this creates potential conflicts that did not exist as 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 notes in a research report.
The job shedding process of the 17,000 or so employees judged superfluous by the acquisition is about two thirds through, except in continental Europe where union rules have slowed it down. A lot of infrastructure has to be sorted - for example in the UK the company now has 42 buildings. Only three of these belonged to Compaq pre takeover so expect a lot of the rest to go.
All this in the first 100 days? Actually much of this was being prepared for before the acquisition was completed but nevertheless, the integration has gone as smoothly and speedily as could be expected. Analysts have commented that the acquisition has looked a better proposition as the year has gone on, though they will be looking at how quickly Compaq can get the revenue returning on its outlay.
So Compaq got a steal and it's all going to work out. So what about what Compaq executives brown nosingly describe as the most valuable Digital asset - the customer base - how is it working out for them?
Digital's most vociferous supporters and critics attended their respective annual user events in Paris and Los Angeles, plus many local events, over the last fortnight to meet their new master.
Compaq's first mistake - Eckhard Pfeiffer attended neither, sending a short video only to the US event. Many users said they 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, admitted a lot of people were annoyed that Pfeiffer had not attended but said Compaq's commitment to users was proving 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 on the Compaq style of computing," he said.
He also said that the user base accepted that, if Compaq carried out its commitments to OpenVMS, Alpha and Digital Unix, there was more future for many of the technologies than if it was still Digital.
Terry Shannon, independent DEC watcher, believes there are a number of advantages to Digital being taken over by Compaq. The combined company will have more clout with Intel and Microsoft than before, it has taken the top dog on the NT block position from Hewlett-Packard and Digital Unix has gained much needed credibility with Compaq's backing. He notes that it may take some time for Compaq to adapt to being an enterprise company however.
"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 said.
On the Windows NT front Compaq has set out its stall very clearly: to have the tightest integration with its other operating systems and NT, and to be the company that helps NT scale across the enterprise. This was the motivation, along with undisclosed financial terms, for giving Microsoft its Non Stop Kernel technology to go inside NT.
Most of the criticism since the takeover rests as much on what the company is not saying, than what it has. The future of its relationship with SCO still hangs unresolved, given the conflict with its stated strategy of driving Digital Unix as its 64 bit offering.
OpenVMS customers, while pleased the OS was at least staying around, remain unconvinced as to how far Compaq will back its development, particularly with ISVs for example.
Finally it has to resolve more clearly what its channel strategies are, in particular for its battle in the PC market with direct vendor Dell, and how to avoid any conflicts in the services arena.
Financial analysts note that in all business sectors, companies frequently struggle for a while around the $40 billion mark, for some unidentifiable reason of scale and management. This is where Compaq will be over the next year.
What else remains to be clarified is how it intends to hit its still stated target of being a $50 billion company by 2000, given the current economic crises, managing all that growth and absorption of acquired companies.
As UK managing director Joe McNally admitted last month, it may be difficult to get there with organic growth alone, so it looks probable that yet another acquisition is on the cards. Did somebody say SCO.......?
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