What does the DEC/Compaq merger mean for Alpha? Prospects uncertain, say analysts By James Niccolai

February  1998

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San Francisco (January 30, 1998) -- The fate of Digital Equipment Corp.'s high-end Alpha processor hangs in the balance following the news earlier this week that Compaq Computer Corp. plans to acquire Digital, analysts said yesterday.

In one possible scenario, Compaq could throw its weight behind Alpha and use the 64-bit chip to build a line of high-end workstations and enterprise servers, driving development of compatible software and breathing life into the beleaguered chip.

Alternatively, Compaq could phase out Alpha production altogether and instead build high-end machines using Intel Corp.'s forthcoming 64-bit chip design, code named Merced, analysts said. Or, the PC vendor could work with a combination of both processors.

"Compaq probably isn't sure itself what they're going to do [with Alpha] yet, but there certainly isn't a termination order in place. Compaq aspires to be an enterprise vendor. Around the turn of the century, everyone and his brother is going to use Merced, and it might be nice to have an architecture that will differentiate you from the pack," said Terry Shannon, editor of Shannon Knows DEC, a newsletter in Ashland, MA.

Compaq has said it plans to support the Alpha chip, which is regarded as one of the fastest on the market. "We are comfortable with supporting Alpha now and in the future." said Eckhard Pfeiffer, Compaq's president and CEO, after the merger was announced Monday.

Speaking in San Francisco this Wednesday, Sun Microsystems's Scott McNealy was eager to cast doubt on the future of a RISC processor that boasts a significant performance advantage over his company's UltraSPARC. Sun's CEO speculated that the question for Compaq is not whether or not to drop Alpha, but how. "How do you shoot Alpha?" he asked. "The thing's still wiggling."

But Compaq's primary interest in Digital probably lies in its broad customer base and global service organization, leaving the fate of Alpha uncertain. "It's a complete coin-toss at this point," said Jim Turley, senior editor of Microprocessor Report, a Sebastopol, CA-based industry newsletter.

What's good?
Besides enterprise-level servers, the Alpha chip finds its home in high-end workstations used by graphic artists, scientists and engineers, among whom Digital has carved out a small, but loyal base of users. Sales of Alpha-based systems last year accounted for about 32 percent of the company's $17.2 billion in product sales, said Digital spokeswoman Shannon Lapierre.

But the chip's relatively high cost to make, coupled with limited available software and poor marketing tactics, has prevented Alpha from gaining the industry support Digital had hoped for, analysts said.

That makes Compaq's intended merger with Digital "one of best things that could happen for Alpha," according to Nathan Brookwood, principal analyst at Dataquest Inc. in San Jose, CA. "The class of systems it enables provides a level of performance that can't be attained with current x86 processors," Brookwood said.

The expense associated with maintaining Alpha's continued development will be reduced thanks to the terms of a proposed patent lawsuit settlement agreed to in October of last year by previous litigants Digital and Intel, Brookwood said. As part of that settlement, Intel agreed to acquire Digital's chip manufacturing facility and assume production of Alpha, while Digital would retain ownership of the chip.

That settlement would assure Alpha's continued production, while Compaq's preferred-customer status with Intel will enable it to negotiate a good price for the chip if it chooses to adopt it in its systems, Brookwood said.

More on Merced
Should Intel come to view Alpha as a competitor to Merced, which is due out next year, Compaq could look to the other two Alpha manufacturers -- Mitsubishi Electric Corp. and Samsung Electronics Co. Ltd. -- for its production, Microprocessor Report's Turley said. But Alpha is unlikely to unhinge Intel's stronghold in the server market any time soon, and Intel is equally likely to view Alpha as a complement to its own chip, providing it with additional markets to sell into, Turley said.

Another advantage Alpha has over Merced is that it is available now, and will likely maintain a performance lead over Merced for a few years, Dataquest's Brookwood said.

In a less likely scenario, Compaq could abandon Alpha altogether and choose Merced as the architecture for its new line of machines, analysts said. Intel's chip has the benefit of being geared toward high-volume production, and guarantees the availability of a wealth of compatible software -- something which Alpha has struggled to find.

Digital officials insist support for Alpha is growing. Microsoft Corp. just yesterday said it has expanded its commitment to Alpha, pledging to release versions of Windows NT and BackOffice for Alpha and Merced concurrently. Microsoft and Digital also agreed to collaborate on bringing 64-bit support to NT 5.0 and SQL Server 7, Digital's Lapierre said.

Analysts remained divided, with most taking a wait-and-see approach.

"Compaq hasn't said anything specific yet, so that means it's still uncertain," said Tony Massimini, chief of technology at Semico Research Inc. in Phoenix, AZ, who was skeptical of Alpha's chances of survival under Compaq. "Compaq has to look at all of DEC's opportunities, not just Alpha, and then see how they're going to fold that in."

Complicating the equation is the ongoing antitrust investigation of Intel by the U.S. Federal Trade Commission, which has expressed concern that the chip giant's cross-licensing agreement with Digital's Alpha processor will give Intel too tight a hold over the semiconductor market. Intel and Digital have argued thus far that Intel's support for Alpha is needed to keep Alpha afloat, but with an injection of support from Compaq that argument may no longer hold water.

--SunWorld's Robert McMillan contributed to this report.

Resources

• DEC's press release on the merger http://www.dec.com/flash/compaq-pr.html
• Digital AlphaServer home page http://www.digital.com/alphaserver/
• Compaq's merger press release http://www.compaq.com/newsroom/pr/pr260198c.html

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