It has been almost 21 months since Compaq bought Tandem, followed just a few months later by the acquisition of Digital Equipment. With more than $13bn in acquisitions to integrate, Compaq has been like a boa constrictor trying to digest a couple of small elephants, and while the lumps are getting smaller, there is still more digesting to be done.

The goal of the acquisitions has been to turn Compaq into an enterprise hardware and software powerhouse, capable of competing with rivals IBM and Hewlett-Packard as one of the top three computer companies in the world. But while the acquisitions have enabled Compaq to reach some kind of parity with IBM and HP in terms of revenues, the company still has some way to go in integrating the Tandem and Digital businesses.

Digital’s much coveted $6bn services business, a primary motivation for buying the company, has still to be fully absorbed into corporate whole. There has been some suggestion that the difference in corporate culture between buyer and target have hindered the process. Furthermore, there is a strong belief that the services business is being driven by hardware sales rather than new business per se. Compaq has not yet broken out its services revenues, so it is difficult to assert how the business is doing.

With most of Tandem’s sales go through its direct sales force, Compaq has been trying to push sales of its acquired Himalaya mission critical fault tolerant systems through its own reseller channel – a rather unusual strategy given the high-end nature of its server line and its target markets in telecoms and finance. Furthermore, while Compaq continues to push ahead in building the Tandem VAR channel, it has yet to detail training and the type and number of engineers that are required to support the Himalaya line, which has no doubt further hampered its indirect sales ambitions.

Compaq says that its direct sales force will concentrate on new Tandem and Digital system sales to Fortune 1000 companies while the existing Tandem and Digital customer base in smaller accounts will be turned over to the independent sales channel. Currently, there are 800 certified ESPs and Compaq has a goal of 1500 ESPs by the end of the current quarter.

But work can’t stop here. Compaq does face some key issues here. Its strategy is all over the place. It would like to go direct like Dell but if it does it will alienate its resellers who are important in reaching small- to medium-sized companies. What Compaq needs to do is refocus its resellers on services rather than product fulfillment, says Doug Chandler at IDC.

Aside from establishing a channel strategy, Compaq had to rationalize the product lines it inherited through the two acquisitions. The company found that it had three major computer architectures to support plus several different Unix variants, Microsoft operating systems and OpenVMS. Tandem Non-Stop and Himalaya systems were based on the MIPS architecture, while Digital offered Alpha microprocessor-based systems, and Compaq supported the Intel x86 architecture with a commitment to support the forthcoming 64-bit Intel Merced architecture, also known as IA-64.

Compaq has now made a strong commitment to the Alpha architecture which is a very speedy chip and it is finding favor among customers building mission-critical systems. It has also moved the Tandem line to the Alpha architecture, says Lloyd Cohen at IDC. According to Cohen, the integration of Tandem and Digital has been going well, especially since Compaq recently announced its roadmaps for the various architectures it plans to support and made a pledge to release new product introductions on a regular basis.

But Compaq’s commitment to Alpha took a while in coming and is believed to have been motivated by delays in Intel’s IA-64 line. With Alpha, Compaq has a 64-bit microprocessor while its rivals have to wait for IA-64. This gives it the ability to sell into the large systems market without having to wait for Merced, says Peter Glaskowsk

y at MicroDesign Resources.

A key question, however, is whether Compaq’s commitment to Alpha will extend beyond the next couple of years. Once there are plentiful supplies of IA-64 chips will it switch allegiances? Alpha supports Unix which is much better for mission critical systems than an Windows NT solution, says Cohen, who expects Alpha support to continue despite IA-64 availability.

On the operating systems side, the company cannot make too many changes. The Tandem installed base, for example, is very resistant to change and although Unix is becoming more reliable and robust, it still does not match the reliability of Tandem systems, says Jean Bozman at IDC. Compaq would certainly like to have NT and Unix replace OpenVMS and Tandem environments but this will be a slow process and may take up to five years to manage, she contends.

In financial terms, Compaq says it has reached key milestones in its integration of Digital. The synergies from the Digital acquisition are becoming more and more evident in our financial performance, says Compaq CFO Earl Mason. While CEO Eckhard Pfeiffer, keen to justify the acquisition, says that the majority of the Digital integration has been completed and it can enter 1999 ready to unfold its full strategy.

Part of that strategy is to leverage the AltaVista search engine it acquired with Digital and to create a large e-commerce portal with the acquisition of Shopping.com earlier this year for $288m. Part of AltaVista will be spun off later this year in an initial public offering but AltaVista is still a vital part of its e- commerce plans. This is a similar strategy to the one Dell and HP are pursuing. Whether having AltaVista in its corner will help Compaq is, however, open to question. Compaq has done little to leverage the brand and it has fallen behind rivals such as Yahoo, Infoseek, Excite and Lycos. Undaunted, nevertheless, the company has said it will build AltaVista into a significant Internet brand over the next few months.

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