It's been quite a week for Digital Equipment Corporation. First came the blockbuster news on Monday of DEC's merger with Texas computer manufacturer Compaq, at $9.6 billion the largest acquisition ever in the technology industry.
In addition, Digital already had planned this week to launch, with much fanfare, a significant expansion of its close services relationship with Microsoft. Both Microsoft chairman and CEO Mr Bill Gates and Digital chairman Mr Robert Palmer flew in to make the joint announcement on Wednesday in San Francisco.
"This is a very broad alliance, a broad technical alliance, a broad go-to-market alliance," said Mr Gates. "It's a model for what an alliance should be like in this industry."
Mr Palmer stressed the advantages not only to Microsoft and Digital, but to its new parent Compaq as well. "The dynamic combination of Digital and Compaq will further strengthen the alliance and make us the strongest and most viable Windows NT solutions provider in the business," he said.
The agreement expands Microsoft and Digital's 1995 Alliance for Enterprise Computing (AEC) arrangement, under which Digital works closely with Microsoft to sell and service Microsoft applications, supports its attempt to move Microsoft's high-end operating system Windows NT into large organisations, and maintains 1,600 Microsoft-certified technicians.
According to the terms of the new deal, the companies have repledged their commitment, broadened their mutual support, and Microsoft will acknowledge DEC as its "prime integrator" for Microsoft solutions. Under the arrangement DEC will gain significant support for its own product line as well.
Microsoft has promised to deliver NT and its SQL Server products simultaneously for Digital's Alpha as well as Intel platforms and will boost Alpha in other ways. The two companies will also collaborate on new technologies for clustering servers and say they are working on a Digital system which would use 32, 64 or more Alpha processors, to debut early next year.
Although the Digital/Compaq merger came as a surprise this week, the Digital-Microsoft agreement neatly underlined why in fact it had happened at all. Compaq, long a leader in the desktop personal computer world, has made no secret of its interest in becoming a player in the enterprise segment of the market, with DEC touted as a possible target for two years. For Compaq, an acquisition was a much faster route than the slow climb of developing high-end systems itself.
DEC was an obvious choice as a marriage partner. The company is widely recognised as the market leader in the enterprise space - not so much for its products, although Digital has a significant legacy system presence and also offers muscular computers using its 64-bit Alpha chip. Instead, Digital is attractive for its ability to offer a well-developed range of services to organisations.
It may seem odd, but Digital specialises in knowing and managing its competitors' products as well as its own, and services organisations which run many computer systems and software applications besides DEC product offerings.
As information technology grows more complex and crucial to companies, they prefer to let outside experts handle servicing rather than go it alone.
Services now account for the largest single segment of the IT market 37.5 per cent in 1996, according to industry analysts Dataquest. Digital's services division employs 23,000, and in fiscal 1996 generated 46 per cent, or $6 billion of the company's $13 billion total revenue.
Such charms have made Digital an extremely attractive partner for Microsoft, which lacks deliberately, according to Mr Gates a significant service offering. Instead, Microsoft prefers to cut deals with companies which it often competes against in other areas. Since 1995, Microsoft has had a detailed services arrangement with Digital, whereby Digital supports and services in particular Microsoft's Exchange messaging product and Windows NT.
Microsoft's current all-out push to get NT into very large companies, or "enterprises", needs aiding and abetting by enterprise experts like DEC, Hewlett-Packard, and Unisys, all of which Microsoft has brought on board as NT partners. Compaq's acquisition of a Microsoft-refortified DEC will make Compaq a formidable competitor to enterprise experts H-P. IBM easily maintains its title as largest computer company, however.
But the acquisition left senior-level DEC employees attending the San Francisco event privately voicing concerns about what lies ahead opportunities, or lay-offs.
Digital pared its workforce in the recent past as part of corporate restructuring; once a computing powerhouse in the 1980s, DEC has performed weakly in the 1990s, displaced by aggressive companies like Sun.
Digital's future will grow clearer in three or four months, after the merger gains the expected approval of shareholders and US federal regulators.
