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."