Compaq To Wage War In Federal Market

Compaq To Wage War In Federal Market By Nick Wakeman Staff Writer With all the weapons now in their arsenal, Compaq Computer Corp. executives plan to do battle as a bigger, faster and mightier warrior in the federal market. "All of those doing business with the federal government really need to examine themselves, because Compaq is going to be moving pretty strongly into every market area," Don Weatherson, vice president of Com

Compaq To Wage War In Federal Market

By Nick Wakeman
Staff Writer

With all the weapons now in their arsenal, Compaq Computer Corp. executives plan to do battle as a bigger, faster and mightier warrior in the federal market.

"All of those doing business with the federal government really need to examine themselves, because Compaq is going to be moving pretty strongly into every market area," Don Weatherson, vice president of Compaq's government and education market, told Washington Technology last week .

The broad array of products and services gained from Houston-based Compaq's acquisition of Digital Equipment Corp. - an $8.4 billion deal cinched last week - allows the company to offer services and solutions that run the gamut of government IT needs, company officials said.

The acquisition by the largest supplier of personal computers worldwide yields a company with almost $38 billion in combined 1997 revenues and 67,000 employees after planned layoffs of some 17,000 employees.

That heft means Compaq will not only compete against direct PC marketers such as Dell Computer Corp., but also against industry giants IBM Corp. and Hewlett-Packard Co., which offer products and services across the full IT spectrum.

Digital's strong service capability will allow Compaq to quickly exploit the federal enterprise market for servers and workstations, industry analysts said.

That deep technical support includes 2,000 certified Microsoft NT engineers, as well as 3,000 Unix engineers.

Both the PC business and the higher-end server market will be strong drivers of growth for Compaq in the government market, Weatherson said.

In addition, Compaq officials pledged this week to continue developing Alpha, Digital's industry-leading, 64-bit computing technology.

Digital brings in about $1 billion a year in government revenues while Compaq's share is somewhat less than that, industry officials said. Neither Digital nor Compaq breaks out government revenues separately.

The acquisition thrusts Compaq firmly into the league of IBM and H-P, said Payton Smith, an analyst with IDC Government of Falls Church, Va., a market research company.

Exactly how Compaq intends to fold Digital's business into its government operations is unclear. But Weatherson does not expect the layoffs to have a big impact on Compaq's government work force.

"We intend to have the strongest possible face on the resources we bring to the customer," he said.

Compaq officials are looking at the three offices in the Washington area that the company now has to serve federal customers, Weatherson said.

Compaq has offices in Reston and Sterling, Va., while Digital has an office in Greenbelt, Md.

The headquarters for Compaq's government and education division will remain in Houston, Weatherson said.

Growth opportunities in the federal government will stem from agencies' shift from a mainframe-based computer environment to networked computing, he said.

The year 2000 date code problem and agency efforts to improve customer service will open up other opportunities, he said.

"People are seeing what is happening in [commercial services] across the country and are concluding that the service the government is supposed to be providing just isn't keeping up," he said.

Although Compaq now gets Digital's considerable services strength, the company will continue to do a lot of business through its services partners, especially in the government market, Weatherson said.

"Compaq is fundamentally a partnership company," Weatherson said.

Edward Hogan, vice president of market development and planning for Unisys Federal Systems of McLean, Va., said some services business Unisys has with Compaq might go to Digital, but Compaq always will have a need for services partners.

"Relationships with an agency or a customer [are] very important," he said.

Compaq will still need the relationships its partners like Unisys bring, Hogan said.

Fitting together the pieces of Compaq and Digital will be Compaq's biggest challenge, said David Wu, an analyst with the Chicago Corp., an investment firm in San Francisco.

"It is not an easy job they have set themselves up to do," he said. "The proof will show in time."

But there are signs that Compaq and Digital will be able to integrate quickly, said Richard Chu, an analyst with the investment company Cowan & Co. of Boston.

Eckhard Pfeiffer, Compaq's president and chief executive, named three Digital executives to his senior management team on June 10. But there are several other former Digital executives who had joined Compaq in previous years, including Compaq's Chief Financial Officer Earl Mason, Chu said.

"There is a lot of overlap, so it is not a management team that is looking at something entirely new," he said.

It will be interesting to see if Compaq can bring the cost structure of its PC business, with its quick time to market and inventory controls, to Digital's enterprise business, Chu said.

"Digital hasn't played in the rough-and-tumble PC market," he said. "If they can pull that off, they'll have a really strong concept."

Don Weatherson

Top Vendors of Workstation Systems Shipped Worldwide: 1993-1997
1993 1994 1995 1996 1997 1997 Rank
Sun Microsystems 208,797 247,045 331,100 313,367 282,000 1
Hewlett-Packard 110,155 156,087 140,995 145,456 107,000 2
IBM 55,353 67,516 99,766 108,072 70,000 3
Compaq 0 0 0 0 66,500 4
Digital 71,868 71,705 60,000 65,174 64,783 5
Intergraph 20,215 12,400 22,420 30,264 52,360 6
Silicon Graphics 28,782 32,252 39,050 39,960 44,094 7
Dell 0 0 0 0 7,500 8
Tri-Star 8,627 5,400 12,000 10,385 8,000 9
Tatung 0 2,500 6,875 7,908 7,469 10
Other Vendors 62,180 52,465 20,680 12,735 15,666
Total 565,977 647,370 732,886 733,321 745,372
Source: ZD Market Intelligence

Total Worldwide CompanyRevenue
1996 1996
IBM 75,947 78,508
Hitachi 65,207 68,735
HP 38,420 42,895
NEC 34,904 39,907
Compaq/Digital 34,572 37,646
Fujitsu 29,160 36,18

Numbers are Dataquest estimates

Source:Dataquest

1997 Workstation Market Breakdown

Unix Workstations
Total sales: $10.1 billion
Sun 41.2 percent
Hewlett-Packard 23.1 percent
SGI 12.8 percent
IBM 10.8 percent
Digital 3.4 percent

NT Workstations
Total sales: $2.2 billion
Hewlett-Packard 35.3 percent
Compaq 23.7 percent
Intergraph 12 percent
IBM 9.5 percent
Digital 6.0 percent
Dell 5.4 percent

Federal Workstation Market

1998 1999 2000 2001 2002
$590 $610 $670 $710 $760

Dollars in millions

Source: Input


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