FOCUS-Compaq/DEC could build big position in Europe
Reuters Story - January 26, 1998 16:37
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By Neal Boudette
FRANKFURT, Jan 26 (Reuters) - Compaq Computer Corp
should be able to use its surprise $9.6 billion takeover of
Digital Equipment Corp . to build an even stronger
position in Europe, analysts said on Monday.
"This basically gives Compaq the reach it needs to tap into
corporations in order to become one of the top computer," said
Terry Earnest-Jones at market researcher International Data Corp
in London.
The merger "will take Compaq a very long way in achieving
its goal" of rivalling IBM Corp and Hewlett-Packard Co
for leadership in the computer systems industry, he
said.
Philip Williams at Dataquest said he expected the deal to
have "pretty positive" results in Europe, where Compaq is the
leading PC supplier and Digital has a broad array of corporate
customers.
"Compaq is looking to move up into the higher-margin server
business and Digital will do that for them," he said.
The takeover, in which Digital would become a wholly owned
subsidiary of the Houston, Texas, PC maker, would give Compaq a
vast computer service business in Europe as well as several
manufacturing plants in Scotland and service centers in Ireland
and Germany.
While the merger is likely to result in layoffs in the
United States, consolidating the two groups in Europe would
probably take more time, the analysts said.
"They will probably take a while to decide how to move
forward," he said. "You can't move as quickly on this in Europe
as U.S. companies usually do."
But in the PC business, where the two are competitors,
Compaq may be able to use Digital's European facilities to
expand sales.
"They may need the extra manufacturing capacity. They have
been expanding rapidly," Earnest-Jones said.
More importantly, Compaq will gain access to a customer list
that includes major European companies such as British
Telecommunications Plc and Credit Suisse .
Compaq is the world's largest PC maker with $24.6 billion in
sales last year. In Europe it is number one with a 16 percent
market share, according to Dataquest.
Last week the company said European sales rose 33 percent in
1997 to $7.94 billion, powered by a 52 percent jump in fourth
quarter unit sales.
Digital, on the other hand, has struggled to balance its
commitment to PCs based on Intel Corp processors and to
larger machines based on its own Alpha chip.
In the year ended in June, it reported net income of $141
million while sales fell 11 percent to $13 billion. It has also
had mixed results in Europe, where its German unit has been
unprofitable.
The companies reportedly discussed a merger about a year
ago, with Compaq mostly interested in Digital's large computer
service organisation, but the talks broke down.
Although the companies agreed to the merger on friendly
terms, the analyasts said it could still encourter difficulties.
"It is a big switch to go from the high-growth fast changing
PC market that Compaq is in to the broader corporate computer
market," Earnest-Jones said. "And the size of the combined
organisation will be a challenge."
Compaq has 18,900 employees, and Digital 54,000.
The analysts expected Compaq Europe chief Andreas Barth to
run the combined European organisation.
However, Williams said the union of two of the world's
largest computer makers could cause some Digital managers to
leave the company.
"It will be difficult to justify having two management
organisations in place and the Compaq style is more aggressive
than the Digital style, so there may be cultural differences,"
he said.
"There will certainly be areas where the two organisations
can't co-exist," he said. |
