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.
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.
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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.
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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.
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