Never in the history of IT has it been more appropriate to liken a. prominent corporation to an onion being prepared for the boil. But in the case of Digital Equipment, the analogy is an apt one.
Gradually over the years, the once great conglomerate has had its layers of business units stripped away until all that remained was an exposed core, left to be picked up by any industry player with a big enough appetite.
Finally, that hungry player was Compaq.
After many months of conjecture, the press was eventually vindicated last week, when the world's largest PC vendor bagged Digital in a record $9.6 billion cash and share deal that made IBM's $3.5 billion takeover of Lotus in 1995 pale into insignificance.
But Digital's destiny was not always this clear-cut. By the end of 1989, Digital was a $12 billion company with 124,000 staff worldwide, consistently able to command a $1 billion annual profit, margins of up to 50 per cent and a growth rate of up to 20 per cent year-on-year. As world leaders go, 40-year-old Digital was a viable and veritable Big Cheese - until 1992. Then it all went horribly wrong.
By then, the company had started losing up to $3 million a day, providing an eventual charge of $2.8 billion by the end of the fiscal year. Culminating in the forced stepdown of Ken Olsen as CEO in July of 1992, it seemed Digital had found itself at odds with the fast-gaining PC market and eventual dominance of Windows NT.
Digital's reliance on its Vax/ VMS mainframes and later Alpha high-end servers meant it was not prepared for the client-server scenario that emerged.
In October 1992, Bob Palmer took the helm as only the second CEO in Digital's 40-year history. What proceeded under his command was a systematic hiving off of Digital's concerns that resulted in the loss of 20,000 staff in the first three years. But despite this, Digital was never again to see the kind of profitability it had been used to in the good old days. The corporation lost its storage products arm, database software and integration businesses, asset and desktop management operation, and printing systems unit.
All this was amid a constant drop in sales of its flagship Alpha systems.
And so more recently, in a settlement of the high-profile law-suit against Intel in October 1997, Digital ended up licensing the manufacture of its acclaimed Alpha processor to the chip giant, to the tune of $700 million.
But it didn't end there. While the industry was still reeling from the shock of the Intel deal, Digital went on to sell its networking business to Cabletron for a trifle $200 million, making the company look even more like a bargain basement than ever before.
By the time Palmer had finished with it, Digital was stripped down to a services business and a chip designer - as it retained the right to do so in the Intel deal - with a few networking and storage concerns.
Of the services arm that remains, a large chunk - the multivendor business including 800 employees - was transferred over to giant EDS in 1997 at a cost of $500 million to Digital.
Compaq, with its Digital subsidiary, is now placed at number two in the computer industry with a combined revenue of $37 billion - second only to IBM with its turnover of $78.5 billion. It also pips Hewlett Packard to the post because, of its $42.9 billion revenue, only $35 billion can be attributed to computers. Fujitsu trails into fourth with a close $36.3 billion.
At last count, Digital had 22,000 service employees worldwide as well as a badly needed, large corporate customer base, an extensive research and development operation that includes about 1,600 Microsoft and 3,000 Unix professionals, coupled with NT expertise on larger systems. And, of course, its internet group, Alta Vista.
Compaq is also armed with its Tandem subsidiary for which it paid $3 billion in June 1997. It is now able to take on IBM and HP, especially in Europe where Digital has 44 per cent of its earnings from European operations, mostly in services.
But of most interest to the industry is the fact that, according to Eckhard Pfeiffer, Compaq CEO, the company now has 44,000 channel partners worldwide. What he also said at the conference was that there would be no meaningful changes to channel relations. But that, quite frankly, beggars beyond belief and only time will tell. The UK channel waits with bated breath, not wanting to show its hand until it gets more details on what will happen. But consolidation of the vendor market will inevitably mean consolidation of the channel too.
For a start, there will be conflict between the massive direct sales force inherited from Tandem and Digital and Compaq's existing indirect channel. There will be a need to mark out the territory for each one.
There will also be the question of product overlap.
Palmer has said he will remain at Digital 'to make sure that the integration goes smoothly', but would not comment on what will happen beyond the transition. But if Tandem chief executive Roel Piper's post-integration departure last month is anything to go by, it probably will not be long before Palmer moves on too.
Many a competitor that knew Digital as a worthy adversary in the past will mourn its final demise. And no matter how much Palmer talks up the fate of Digital, its alumni will not be able to resist reflection on a time when it was king.
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