It only took 10 minutes to explain their settlement terms, but the deal cut by Intel Corp. and Digital Equipment Corp. on Monday will have profound long-term effects on the technology Digital provides to its customers.
Having been touted as Digital's beacon to the future for the last five years, the Alpha processor will take a backseat to Intel's IA-64 architecture and the forthcoming 64-bit chip, code-named Merced, that Intel is developing with Hewlett-Packard Co.
Digital will begin focusing both its hardware and software efforts on IA-64 next year. The company plans to build an IA-64 version of Digital Unix, and it may even get Intel to help port OpenVMS to IA-64 if the size of the market warrants it, Digital insiders said this week.
The multifaceted settlement of the Digital and Intel patent infringement suits calls for Digital to design systems built around Merced, which is due in 1999. The companies also entered into a 10-year cross-licensing agreement that includes what Intel President Craig Barrett deemed "immaterial" cash payments to Digital. The lawsuits have been stayed until the Federal Trade Commission approves the deal, at which time they will be dropped.
Although Alpha designers will continue to push the envelope with new processors, it's clear that Alpha will become a secondary chip to IA-64.
"We will fully support 64-bit Intel processors [on Unix and Windows NT], and Alpha will be complementary to that,'' said Howard Elias, vice president of Digital's NT Systems Business Unit, in Maynard, Mass.
While officials at Digital and Intel downplayed the expiration of Alpha production, observers were more blunt.
"This is the death of Alpha," said an IS executive at a large utilities company, who requested anonymity. "It's going to be a depressing DECUS." The annual Digital users group meeting is scheduled for next week in Anaheim, Calif.
A Digital official said the company is on track to deliver the next-generation Alpha 21264 in the first half of 1998, and an executive-level Digital insider said Intel will guarantee Alpha production for 10 years.
However, as part of the settlement, Digital becomes Intel's only customer for Alpha, calling into question the future of the Alpha clone business and such companies as Enorex Microsystems Inc. and DeskStation Technology Inc.
Along with its porting of Digital Unix to Intel's 64-bit architecture, Digital is co-developing with Microsoft Corp. a common programming model that will help ensure that Alpha/Unix applications today will run on Merced, thereby preserving investments.
"This gives customers a chance to run scalable applications within a mature, robust operating environment," said Greg Garry, an analyst at Dataquest Inc., in San Jose, Calif. "[Digital] is staking the future of the company on IA-64."
The key part of this week's deal is Intel's purchase of Digital's Alpha manufacturing facility in Hudson, Mass., for $700 million. Intel will build Alpha chips for Digital, absorbing about 2,500 Digital employees in the process. Applying Intel's efficiency and economies of scale will probably result in lower-priced Alpha systems, Elias said.
For Digital, the sale of the plant is a graceful way to back away from a huge cash drain. The facility was running only at approximately 30 percent capacity.
"We are drastically changing our business," said Elias. "We no longer have to worry about the escalating investments in manufacturing. We're a systems company."
Digital also no longer needs to worry about its StrongARM business. Intel is acquiring the design, engineering, manufacturing and marketing rights to StrongARM, an integrated, low-power RISC-based processor for, among other things, Java-based NCs.
StrongARM would give Intel entry into the network computer market-if it decides to keep it. Intel already has a low-power RISC chip that's used in communications devices.
"It's not a foregone conclusion that we'd keep it or sell it," said Chuck Mulloy, an Intel spokesman in Santa Clara, Calif.
Digital co-developed StrongARM with Advanced RISC Machines Ltd., in Cambridge, England. One possibility for Intel is to sell its rights to the chip to ARM.
As Digital continues to sell off the pieces that made it unique, the company is left with essentially two trump cards-its services business, which accounts for about half of its revenue, and the forthcoming dual strategy for Unix.
"Long term, [Digital] still has a lot of issues," said Henry Danziger, IS director at Johnson Controls Inc., in Plymouth, Mich. "What unique [products and services] can they provide for customers in the future? There is more commonality to what they are doing every day."