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EDITORIAL: Alphabet Soup

EDITORIAL: Alphabet Soup

Compaq are in the news again this week. Two stories breaking from the States may have a big impact on the shape of the Texan vendor in a few years time.

Firstly, the Wall Street Journal unveiled a memo from CEO Michael Capellas to all Compaq staff reporting that the company was looking to move away from PC manufacturing and into services.

There is nothing new about Compaq declaring its keenness to discard the public perception that it's a PC maker. It started touting the "we are a solutions company" line in late 1997 after the Digital acquisition was announced. The line must not be working as the statements just keep on coming.

The second big Compaq story this week saw the company announce it was abandoning the proprietary Alpha chipsets acquired from the takeover of Digital. Instead, it is standardising its 64-bit processing products into one platform - Intel's Itanium.

Many pundits see this as a direct result of the purge of Digital staff that occurred after Compaq took over. Most of the senior positions in the merged entity went to Compaq personnel, including key positions in the enterprise group responsible for Alpha technology.

It has been suggested to me, as portions of Digital's staff were either being squeezed out, taking up redundancy offers or failing to become enamoured with their new employer's corporate culture, that the adoption rate for Alpha technology had begun to slow. Now some analysts are saying the cost of Compaq continuing to offer a proprietary system is outweighing the benefits of keeping it moving forward in-house.

Naturally, Compaq denies it is a decision based on lost Alpha skills, preferring to use the line, "it is all about "fast-tracking the adoption of industry standards". This too is somewhat plausible, but the move is certainly symbolic of the confusion and indecision at Compaq in regards to where it wants to go and how it wants to engage the channel.

One of the Compaq-stated benefits from its buy out of Digital was the acquisition of proprietary technology. By having Digital's Alpha 64-bit product set in the portfolio, Compaq had broken its significant dependence on standards-based products, which were quickly commoditising. Compaq had also demonstrated to Wall Street investors that it was now in the same league as HP, IBM and Sun.

Now Compaq's focus on proprietary technology is being turned elsewhere and what is clearly a great technology is left to Intel to be commoditised. The chip giant will now incorporate some of Alpha's features into its 64-bit Itanium technology and drive it all towards creating 64-bit industry standards.

Customers may very well benefit from accelerating the rate of adoption of 64-bit technology, but for channels the advantage may not be so clear. The costs will come down and some of the technology's complexities will fade away, opening the door for more channel companies to play the game.

Therefore, channel partners of Compaq's who are already selling and servicing the technology will see the big margins they make, courtesy of unique expertise, shrink through increased competition. There might also be some channel concerns as the company pushes towards more services revenues as the vendor and its channel partners will be coming up against each other more frequently in contract bidding.

Have Compaq done the right thing by committing to Itanium by 2004? Tell me what you think. n


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