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October 26, 1995

COMPAQ COMES TO THE MICROSOFT TABLE, WHERE THE DISH OF THE DAY IS CHOICE CUTS OF DEC

By CBR Staff Writer

Compaq Computer Corp has strengthened its armoury for its continued assault on the mid-range market, getting Digital Equipment Corp to provide worldwide support and service for its servers, and working with Microsoft Corp and Tandem Computers Inc on clustering its boxes into enterprise computing systems (CI No 2,772). At its Innovate Forum ’95 in Houston, Texas last week, Compaq gathered its customers and supporters together, to hammer home, yet again, the message that the company is no longer just a personal computer builder, but a ‘new breed of computer company.’ You’ve known Compaq as the portable personal computer company, as the personal computer company, said president and chief executive Eckhard Pfeiffer. We are rapidly becoming Compaq, the computer company. And, reflecting that, the forum was very much the systems division’s show with desktop and consumer chiefs making only hurried forays into the spotlight. Ever since the company launched its personal computer architecture SystemPro server in 1989, Compaq has been talking up its mid-range story.

Source motherboards

It is really trying to enter the market, underneath the AS/400 level, seeking to dominate the provision of back-end servers for networked personal computers. However, it and other companies that use a personal computer architecture for their servers, believe these systems can rival minicomputers in the mid-range, because they are cheaper and easier to scale. Using these kinds of arguments, Compaq has been winning market share in the iAPX-86-based arena with its ProLiant and ProSignia servers. It claims 41% of the mid-range market, which is estimated to be worth about $10,600m, although the overall market is valued at $44,000m. Next year Compaq will have P6-based servers – it is making them into motherboards itself, although it says There may be certain times when we will source motherboards – and in the second half of next year it will launch clustered systems, for which it has gone to Tandem, to provide routing technology, and Microsoft, for the operating system. But while the company has servers that people like, it does not have the capacity to support a massive worldwide expansion in its server base, in the way that Hewlett-Packard Co and IBM Corp can. To be able to offer this level of support was found to be crucial in the eyes of potential customers, if it is to crack this market, according to the company’s own market research. This is where the DEC deal, hammered out over 18 months, comes in. For the Maynarder, the deal is something of a double-edged sword. It appears to confirm that after last year’s selling spree of most of the stuff that made it an all-round computing company, of the kind Compaq is trying to become, DEC is evolving quite definitely into a service provider, reliant on the kindness of others to stay in business.

By Maya Anaokar

Indeed, John Rando, vice-president and general manager of DEC’s Multivendor Customer Services, said the company wants to be a world leader in the field. Currently, the proportion of turnover represented by his unit is 30% and the division is the single largest global division within DEC, generating $4,000m a year. The Compaq deal, the division’s largest ever, is valued at between $250m and $1,000m over the next three years; DEC reckons it has the potential to become the largest support and service contract in the industry. And working with Compaq does shift the reliance a tad, from its service agreement with Microsoft, making it less of a Redmond handmaiden. Nevertheless, there are concerns that while Compaq really does need DEC at the moment to make its mid-range offerings look credible, once it establishes itself in this market – and it is enhancing its internal worldwide service and support infrastructure and opening technical support centres in Houston, Munich and Singapore – it will hire the DEC people it needs and DEC will be out in the cold. Until then, however, Digital Multivendor Customer Services will be Compaq’s Global Service and Support Provider. What apparently will happen in the field is that all of Compaq’s existing qualified distribution partners will continue to offer Compaq users service and support, and if that meets customers’ needs then neither Compaq or DEC will get involved. However, if the customers have global businesses – and it is really these types of companies that Compaq is going after with its talk of enterprise server domination – with global expectations, then that is when DEC staff will step in, probably wearing Compaq tee-shirts, and selling Compaq-branded services. Also apparently bad news for DEC is Microsoft’s interest in Compaq’s clustering ambitions. DEC itself has been working on clustering its AlphaServers and has actually given Microsoft some of its clustering technology. But when the Redmonder was asked whether it was using DEC technology to catapult its Windows NT operating system into the world of parallel computing, especially the Compaq work, there was considerable obfuscation from the software giant, other than a lame there’s opportunity for quite a lot of sharing. Bob Muglia, vice-president of Microsoft’s business systems division, said We want to make sure that what we’re developing meets the needs of hardware and software, and its difficult to determine what those needs are before we’ve talked to people. He describes the stage at which NT is at in this field as a beta test of the specification.

No real loyalty

Microsoft’s goal is to make Windows NT a fault-tolerant operating system capable of working on any hardware and it is developing it for Alpha, iAPX-86, Precision Architecture RISC and PowerPC, so there is no real loyalty to any one hardware vendor there. Compaq, however, does not have this choice: while it has hardware attractive to large companies, its choice of operating system is limited. It says it has gone for Windows NT because NT is becoming more popular in its chosen market, and says that this year, 30% of the servers it sells will run NT. Although it has done brisk business with NetWare-based machines, Novell Inc’s change of tack no longer makes this operating system a logical choice, pushing Compaq ever further into an alliance with Microsoft and NT. Even having made that choice, NT is unlikely to be at the same stage as the hardware by the second half of next year, when Compaq launches its clustered ProLiants, which raises the question of how long it will take the Houston firm to make the mid-range a truly open market.

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