Digital discusses Alpha, Merced and Compaq merger plans

Digitalwill be tightly integrated into Compaq rather than remain as a stand-alone unit, a senior Digital executive said yesterday.

Harry Copperman, senior vice president and group executive of Digital's products division, also reaffirmed Digital's commitment to the Alpha microprocessor and said the company will shortly sign an unspecified third semiconductor maker to fabricate the chip.

Copperman said that while initial plans called for a post-acquisition Digital to be operated as an independent unit, executives at both vendors quickly agreed to integrate instead. "The plan right now is not to run two separate companies,'' Copperman said. "It was clear after the first meeting [between Compaq and Digital] that there were too many opportunities not to integrate."

A Compaq spokesman said the company "would not comment during the mandatory quiet period," saying, "we have not communicated any such decision."

Unlike previous Compaq acquisitions, such as Tandem, which is now a wholly owned subsidiary, the Compaq/Digital plan calls for building an integrated new company based on meritocracy and customer advantage. "One plus one plus one could equal four," Copperman said, suggesting Tandem will be folded into the new entity as well.

Although Tandem operates as a separate entity, its sales force has been merged into Compaq's. "It's not obvious to me [Digital] will keep an enterprise sales force. We've had a lot of sales forces [over the years]," Copperman said, noting a traditional Digital weakness.

The Compaq spokesman clarified the Tandem relationship, saying it has been Compaq's intention from the beginning to fully integrate Tandem. Legal issues, however, forced Compaq to maintain Tandem as a wholly owned subsidiary for a prescribed period of time. "Compaq," the spokesman said, "is integrating Tandem in phases." The first phase was the integration of the sales force. Integration of the remaining Tandem groups-including marketing and public relations, for example-is being planned.

Though legally bound to continue operating as separate companies until the deal is closed, which is expected in the second quarter, Digital and Compaq have been hammering out transition details since the deal was announced in late January. Two hurdles - shareholder approval and the go-ahead from government regulators - remain to be cleared.

Digital is planning to announce a third foundry for the Alpha chip, in addition to an existing deal with Samsung. Copperman would not identify the new foundry.

Also on the Alpha front, Digital is moving ahead with plans to migrate the Alpha 21264 chip from the 0.35-micron to the 0.25-micron process late this year, said Jesse Lipcon, vice president of the Unix and OpenVMS Systems Business Unit at Digital. By mid-1999, Intel will be using 0.18-micron technology to build IA-64 and Alpha chips, according to current plans.

Copperman was blunt about competing with Intel's 64-bit Merced architecture, due in late 1999. "If Merced comes out cheaper and faster than Alpha, then Alpha goes away,'' Copperman said. "But I really don't see that happening. Our industry abhors monopolies. There always has to be a number two. I think Alpha stands a good chance of being number two.

He also remarked that IA-64 will remain an unknown until next year and even then, Copperman contended, Alpha will be a higher-end alternative to Intel's next-generation microprocessor. "We have two more generations in the pipeline."

As for the rest of Digital's products, there are many synergies between Compaq and Digital. "The PC space is the only area where there is a lot of overlap, but we have almost no overlap in [PC] customers," Copperman said. At stake is $5 (£2.98) billion in long-term Digital PC contracts that could be migrated to Compaq over time.

"I'd be very surprised and disappointed if AltaVista and StorageWorks didn't survive as sub-brands," he added. Digital Unix, according to Lipcon, will compete with versions from Sun, Hewlett-Packard, SCO and IBM as the number of Unix variants dwindles over the next few years.

Workforce reduction, Copperman said, will be inevitable as the companies move to eliminate "overlap." Working under the strain of uncertainty and the fluidity of the current circumstances, Copperman nonetheless remains excited about the merger. "Together we have a chance to be a real leader in the marketplace ... but the difficult thing is you can't make the tough decision [at the moment]."

Copperman said he has not thought much about where he will end up in the combined organisation, yet he seemed resigned to whatever fate deals him. "Being a captain of a rowboat and becoming second-in-command of a battleship, does that matter?"