There has been a deafening silence since we revealed behind-the-scenes talks between Digital Equipment Corp and Compaq Computer Corp intended to lead to a close bilateral alliance between the two companies going far beyond their joint participation in the Advanced Computing Environment initiative (CI No 1,777). There has not been a whisper in the mass […]
There has been a deafening silence since we revealed behind-the-scenes talks between Digital Equipment Corp and Compaq Computer Corp intended to lead to a close bilateral alliance between the two companies going far beyond their joint participation in the Advanced Computing Environment initiative (CI No 1,777). There has not been a whisper in the mass circulation public prints – but then it took months before the goings on between IBM Corp and Apple Computer Inc began to surface outside the pages of Computergram. At the time we ran the DEC-Compaq story, the signals we were getting was that the alliance would fall short of a partial or total takeover by DEC of Compaq, but we now hear that at the Systems show in Munich, Compaq people have been talking openly of takeover by DEC. Such a move would put a few noses out of joint at DEC’s commercial partners, because at present, DEC buys most of its personal computers sold in the US from Tandy Corp, and gets its European ones from Ing C Olivetti & Co SpA, which also supplies notebook computers for worldwide sale. Nevertheless, such agreements can readily be terminated at the pre-set break points, and DEC has long been convinced that it ought to have a much larger share of the personal computer marketing than it presently commands while the IBM-Apple alliance demands a very convincing response from DEC, and getting Compaq on board would be a satisfactory first step. Although the gap in turnover between IBM and DEC has narrowed dramatically in the last decade, it is still uncomfortably wide, and DEC would clearly like to be looking at annual volume of $25,000m within the next three years, and taking in $3,000m of annual Compaq sales would be a big step in the right direction. The company is still uncomfortably dependent on the VAX for the bulk of its business at a time when proprietary architectures are coming under growing pressure and its MIPStations have stubbornly remained also-rans in the workstation market, where Hewlett-Packard Co and Sun Microsystems Inc still hold sway and IBM may very soon become a serious contender in terms of market share. DEC can bring Compaq key design skills as the two companies get to grips with designing workstations for the still very ill-defined Advanced RISC Computing environment, and can give the Houston company the direct sales entree into large accounts that it lacks, while giving DEC access to an additional blue chip dealer network.
On anti-trust grounds, the fact that DEC now buys in most of its personal computers means that there should not be any serious objections raised to a merger – and one aspect that makes the thing attractive to Compaq is the fact that DEC was saying earlier this year that its personal computer sales were really doing rather well – it would have been nice if those sales had been of Compaq machines. It should of course be remembered that far more such alliances are discussed between companies than ever make it into the newspapers, and that most of them ultimately come to nothing: it wasn’t until the other day that most of us learned that AT&T Co had run Hewlett-Packard, DEC and Apple through its computers before deciding to bid for NCR, so DEC-Compaq may well be another one that comes to nothing. If it does come to fruition, what do we look for? One possibility is that DEC buys a 10% stake in Compaq in the form of newly-issued shares, and says that it will buy more from time to time in the market with a ceiling on its holding of perhaps 30%. DEC has plenty of cash in its coffers, so could afford such an investment relatively painlessly. But DEC is wisely extremely conservative with its cash so rather more likely, if Compaq management is amenable, would be an outright takeover in the form of a share exchange, taking advantage of the fact that Compaq’s share price is even more bombed out than DEC’s as a result of the deep depression in the personal computer business: a premium of about 35% to market price should be enough.