I thought you might be interested in seeing this article dated 9/23/98.
Houston, Sept. 23 (Bloomberg) -- Compaq Computer Corp.'s takeover of Digital Equipment Corp. is leaving some Digital clients less than thrilled, creating openings for Hewlett-Packard Co. and others to gain profitable corporate accounts.
Since the $9.18 billion purchase was unveiled in January, business is booming at a Texas company that converts Digital users to International Business Machine Corp. computers. Hewlett- Packard, the world's No. 3 computer maker, says it's picked up about 1,000 Digital customers.
Digital clients like the American Stock Exchange and Dow Chemical Co. are key for No. 1 personal computer maker Compaq, which wants to team PCs with Digital's big computers and service contracts to win corporate business. As the new company takes shape, some customers question whether Compaq has the expertise or inclination to support the complex systems they require.
''I'm nervous,'' said Jim Waldron, vice president of information and technology for the Aircraft Owners and Pilots Association, a Frederick, Maryland-based group that represents 340,000 commercial and private pilots.
''Digital has always had a good reputation for support. We've had less than that kind of success with Compaq,'' he said.
Waldron said he threw out a ''shopping cart load of fiber, interface cards and hubs'' when Compaq discontinued some networking products gained in its 1995 acquisition of Thomas Conrad Corp.
He's afraid Compaq will scrap Digital products as well. Even so, the association will keep using Digital computers because they're so powerful, Waldron said.
No Fear
Compaq says the fears are unfounded.
''Reaction from customers to the merger has been very positive,'' said Enrico Pesatori, Compaq senior vice president of worldwide marketing, who is overseeing part of the companies' integration. The acquisition, which was completed in June, is ''living up to all expectations,'' he said.
Indeed, some say its new parent may finally give Digital the marketing clout it lacked, gaining customers for Digital's Alpha computer chip, among other benefits.
''Compaq's ability to market . . . could be an advantage,'' said James Tompkins, a lead member of the technical staff at Digital customer Sandia National Laboratories, an Albuquerque, New Mexico-based defense research facility.
Keeping such clients is crucial to Compaq, whose earnings fell for two quarters amid price cuts and slower PC sales growth.
Compaq's earnings are expected to decline until the first quarter. And only Digital's businesses prevented Compaq from a loss last quarter, analysts said. Digital's profit before gain was $106 million on sales of $3.19 billion for the fiscal third quarter ended March 28, compared with first-quarter profit of $16 million and sales of $5.69 billion for Compaq.
Mum's the Word
Part of the concern is that Compaq hasn't said exactly what it intends to do with Digital, customers said.
''They're not getting it out to the public,'' said Joel Richon, secretary treasurer of Digital Equipment Corp. Users Society, a Littleton, Massachusetts-based organization that represents more than 15,000 Digital customers.
Compaq plans to cut 17,000 jobs worldwide, reducing its combined workforce by 20 percent to 67,000 in the next 10 months, as it digests Digital. The effort of streamlining, while keeping customer support intact, is a challenge.
Clark County, Nevada, a Digital customer, had been told that Digital would hire more service employees to manage the county's computer network. That plan was quashed after the acquisition.
''There have been problems with service,'' said David Edwards, the county's assistant director of information systems. ''I don't know what they're doing.''
Loss is Gain
Sento Consulting Inc., an American Fork, Utah-based company that sells and installs Digital computers, says it's lost $1 million in sales since the acquisition was announced because of concerns about service.
''The last few months have been a nail-biter because so many people stopped buying,'' said J. Allen, Sento's executive vice president. He said that sales have picked recently.
Those losses can mean gains for rivals.
H-P said it has persuaded 1,000 Digital customers including McGraw-Hill Cos. to begin replacing their products with H-P's.
''The DEC installed base is moving and we are actively courting them,'' said Nick Earle, vice president and group marketing manager of the enterprise systems group at H-P.
Digital Baggage
Even if Compaq can successfully combine the companies, it must confront problems that stymied Digital.
Many customers of VAX systems -- Digital's premiere computers in the 1970s and 1980s -- are replacing the machines with IBM's RS/6000 and H-P's Unix computer servers. That's because developers are creating less software for the Digital machines and rivals are unveiling high-performance alternatives.
Almost 30 percent of the 2,000 VAX customers polled in 1997 before the acquisition planned to move to another computer system. Of those, 83 percent were going to buy competitors' machines, market researcher Harvard Research Group found.
Booming Business
Companies that develop software to wean businesses from OpenVMS, the operating system for VAX systems, are reporting strong sales.
''Our business has grown exponentially since the merger,'' said Jon Power, president of Sector 7, an Austin, Texas-based consulting firm that converts VAX users to IBM computers. ''There is no one out there not actively looking for an alternative.''
The operating system ''clearly is fading away,'' said Mike Sullivan, chief information officer for Mitel Corp. The Kanata, Ontario, Canada-based semiconductor maker is moving from its OpenVMS system to one based on Unix. Digital is one of several companies in the running for the sale, he said.
Compaq says it's working on alternatives to keep clients like Mitel.
''We have no intention of not being able to have those customers stay with Compaq,'' Pesatori said. The company will work with customers who want to switch from VMS to help them pick software, like Microsoft Corp.'s Windows NT, which Compaq offers.
Some are optimistic that Compaq will revive OpenVMS. They're also hopeful that Compaq's pledge of support won't wane in coming months.
''They've told us they will have a strong, continuous commitment,'' Sandia's Tompkins said.
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