Overlap is next hurdle for Compaq-DEC

With today's $9.6 billion acquisition of Digital Equipment Corp.
Written by Lisa DiCarlo, Contributor

With today's $9.6 billion acquisition of Digital Equipment Corp., Compaq Computer Corp. plugs some gaping holes in its product and services strategy, at the same time shining light on an obvious overlap in X86-based servers, desktops and portables.

However, analysts expect the PC cross-over to be short-lived, with Digital eventually discontinuing its PC business to focus on services, systems integration and Alpha-based systems.

"It's unlikely for the moment that they will change anything. but it's pretty obvious they can't maintain two distinct [X86] lines for very long," said Roger Kay, an analyst at International Data Corp., in Framingham, Mass.

Indeed, Compaq, of Houston, and Digital, of Maynard, Mass., sell through many of the same channel partners and target the same enterprise customers with their respective X86-based hardware.

But since Compaq has a much firmer grip on the corporate PC market, there may be little need to maintain Digital's X86 portable, desktop or server lines, Kay said. In the third quarter of 1997, Compaq accounted for 14.1 percent of all X86 portables, desktops and servers sold worldwide, compared with Digital's 1.3 percent, according to IDC.

Bruce Claflin, Digital's senior vice president and general manager of worldwide sales and marketing, said the companies have not yet worked out specific product plans, but consolidation is imminent.

"We will take the best of both [companies' products] and form a converged road map in 1999," Claflin said. "Compaq has great Intel-based products, but so does Digital."

Specifically, Claflin cited Digital's HiNote Ultra super-thin notebook, which has won rave reviews. Compaq does not currently have an ultra-thin notebook, and it's possible the HiNote could survive the merger.

Other areas of overlap, such as networking products, have already been remedied. Digital is currently in the process of selling its networking business to Cabletron Systems Inc. And although both companies have healthy enterprise options businesses, such as network storage, Claflin said they do not overlap enough to cause a problem.

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