News Analysis: Compaq?s Tandem buy puts it in server race

Compaq hopes acquisition will push it hot on the heels of IBM and HP into the high-end market

What does the $3 billion that Eckhard Pfeiffer, Compaq CEO, has spent, buy his company? Five years ago he vowed to turn the company around with the emphasis on networks. And while Pfeiffer has achieved his goal to turn Compaq into the number one PC company in the world, he is aiming even higher.

IBM and Hewlett Packard (HP) are two companies Pfeiffer desperately wants to supplant, and the Tandem buy will help him, according to Hugh Jenkins, enterprise group product manager at Compaq UK.

He said: ?This is a great acquisition for where Compaq wants to take its server business. It wants Tandem for non-stop, highly available systems at the high end. This isn?t about short- term issues, the real point is whether we can take engineering expertise and apply this to Compaq with its servers.

?You can get so far under your own steam but there?s a stage, like climbing a mountain, where you need someone at the top with a rope attached to you. These are people who have been building redundant systems into mainframes. In two years, many of the mid-range vendors will be caught in a pincer movement by Compaq.?

He confirmed that Compaq?s targets are IBM and HP. ?This acquisition is not about people like Gateway, ALR and Dell. We understand how to keep ahead of them. The people to beat are HP and IBM.?

That is a view market research company IDC supports. Martin Hingley, a senior analyst at IDC UK, said the acquisition is ?probably the most important server-related announcement of the year so far?.

He said in an IDC Flash report: ?Compaq reached the point some time ago at which it needed to think about an acquisition of this type and there have been rumours of the company looking at a number of potential purposes. It has been modifying some of its ideas in distribution channels, looking at multinational direct sales and AS/400 style agent business to its traditional two-tier strategy for the first time.?

That will result in a wider range of solutions from Compaq, IDC believes. It will gain access to profitable, mission critical application business within large corporations, which is ?impossible to penetrate with PC servers alone?.

The Tandem Servernet technology, in particular, will help Compaq because it is the key component of MS Wolfpack.

Yet although IDC agrees with Jenkins? assessment, and despite Compaq?s insistence that it will maintain the channel model by sourcing equipment via its partners to Tandem, there are problems in the offing.

David Chalmers, head of technology at Sequent Europe, said that while he agreed that Tandem will help Compaq move into the high end, it is likely to face problems with its channel and keeping the 4,000 direct field staff it bought.

Nor does the buy give Compaq the service and support it still needs, said Chalmers. ?They don?t have much of a services operation and Digital is the obvious target,? he said. ?Shooting Alpha and keeping the services will give them that.?

It?s been a tumultuous seven days with the Gateway 2000-ALR acquisition followed closely by Compaq?s buy. But worse is likely to come. Many think Sequent could be the target of an acquisition which is likely to affect other vendors such as Unisys.

Unisys is a major supplier to Tandem of high-end Intel boxes, and those machines are made by ALR. What happens to Unisys when Tandem insists on using Compaq kit instead?

Vesey Crichton, head of the enterprise division at Compaq UK, said that Tandem will buy its machines but will do so by sourcing them through its own loyal channel to reassure it of its good intentions.

There is more to come. When Compaq was mooting the Gateway 2000 acquisition earlier this year, one of the reasons senior executives gave, off the record, was that it would help them reach micro-businesses. That deal fell through but Dell chief Michael Dell will not hesitate to get his cheque book out if he thinks Compaq will leap ahead in a market his company wants. The battle of the Titans has begun.