Compaq buyout of Digital to lead to layoffs

Compaq will announce details of its purchase of Digital in the US in June, following final approval from the Federal Trade Commission, which is expected later this month.

Leading up to Compaq's disclosure of how it will integrate products and services will be news that the merged company intends to lay off as many as 20,000 employees, according to a number of sources close to Compaq.

Compaq has nearly 33,000 employees; Digital has nearly 55,000.

In addition, the integration of Digital's coveted services and support division into Compaq has resulted in some significant losses.

Dell and NEC are two major customers that have decided to move the outsourcing of their service and support away from Digital to other providers.

"We didn't want to be in bed with a competitor," said Tejas Vakil, US-based vice president of marketing at Dell's server division. "We weren't going to partner with Compaq, and we have moved our response capability from Digital to Wang."

NEC dropped Digital immediately following the announcement of the Compaq and Digital merger, said a NEC representative.

Compaq's new service arm may bleed more heavily in the future.

"Nobody in this space wants to send money and profit to a key competitor, and others could do this as well," said Morgan Gerhart, a US-based analyst at the Meta Group.

Compaq is also facing internal strife as it seeks to digest another industry behemoth. Conflict between the merging companies has arisen over fears of being laid off, according to sources.

Employees are fighting for the lives of their products, and subsequently, their jobs.

One analyst offered this explanation for the internal struggles.

"The individual product managers are going to lobby for their own stuff because they might lose their jobs otherwise," said Roger Kay, an IDC analyst.

When similar products overlap, however, the decision about which one to keep may be obvious.

"Assuming you have roughly two equivalent product lines, it's hard to make a bad mistake," said Chris Willard, research director for high-performance technologies at IDC. "And in the real world, the politics say the division within the larger buying company survives."

Sources confirmed that Digital's high-end HiNote Ultra 2000 thin-and-wide notebook will be kept on as part of the mobile product line. The fate of other Digital notebooks, namely the HiNote VP line, is undetermined.

Compaq is also expected to announce the expansion of its Optimised Distribution Model (ODM) to all product areas, including servers and notebooks. ODM is a three-phase program consisting of build-to-order, configure-to-order, and channel configuration. Currently it is only implemented on PCs.