Unconfirmed reports in the Wall Street Journal Monday claimed that Digital Equipment Corp was negotiating with Intel Corp over the sale of DEC’s Alpha technology, for a price of $1.5bn. The Journal cited the patent lawsuit DEC took out against Intel back in May (CI No 3,160) as the primary reason for such a deal, with Intel eager to avoid a long and protracted legal battle. But analysts marked the stock up on the strength of the report, saying that DEC needs to lessen its exposure to Alpha, and that such a move would make it a more attractive takeover candidate. Merrill Lynch upgraded the stock to accumulate. The Journal story said that the $1.5bn pricetag included $650m for Alpha manufacturing capacity, $200m for Alpha licensing and $100m as discounts on Intel chips for the next seven years. Intel would be obligated to produce the Alpha chip for several years, but DEC would keep its Hudson, Massachusetts-based semiconductor plant, with Intel buying capacity from the plant. DEC has been looking for a partner to help shoulder the looming cost of a major plant upgrade for next generation Alphas, expected to cost it well over $2bn. But getting rid of the Alpha would be painful for chief executive officer Robert Palmer, who originally ran the semiconductor unit that brought Alpha to market in 1991. Alpha never achieved the volume predictions that would have resulted in a payback in investment, and DEC was forced to sell off its spare chip manufacturing capacity to Motorola Inc and Advanced Microprocessor Devices Inc. The heart of DEC is as an engineering company, which it has been since day one, said one ex-DEC employee. If DEC sold to Intel, it is likely, like Hewlett-Packard Co before it, to make a gradual transition over to Intel’s Merced chip, and concentrate on high-end NT business and its services, which make up around half of its revenues. Antitrust regulators, already investigating Intel, might have something to say about that, of course. Without Alpha, and with some $3.5bn in cash reserves, DEC would be an attractive takeover target for the likes of Compaq Computer Corp. DEC wouldn’t comment, although one DEC insider reported seeing a denial on the company’s internal intranet.
