ompaq Computer's agreement last week to acquire Tandem Computers Inc. gives the one-time PC box-mover control of technology that will enable it to set the direction for Windows NT-based clustered servers.
The $3 billion deal also completes Compaq's transformation to a full-service enterprise IT supplier. It gives the company a much-coveted direct conduit to large accounts with the acquisition of Tandem's 4,000-person sales force. The move should silence critics who have charged that Compaq could not truly compete with the likes of Digital Equipment, Hewlett-Packard, and IBM at the enterprise level without its own direct sales team providing one-to-one contact and gathering direct feedback. Though analysts say Tandem's sales force only partially addresses that need, it certainly points Compaq in the right direction.
Compaq's ambition of becoming a $40 billion company by
the year 2000 hinges on its ability to extend its enterprise reach. Half of its sales this year are expected to come from the enterprise market, while last year, those sales accounted for just 25% of revenue. All of Tandem's $2 billion
in revenue comes from the enterprise market.
Tandem's sales and service employees will double the size of Compaq's sales, support, and professional services infrastructure. Notes Compaq president and CEO Eckhard Pfeiffer, "We saw that it would simply take too long to grow those resources internally. Now we have them through this acquisition, and they've already been calling on enterprise customers."
At the same time, Compaq moves up the technology chain. By combining Tandem's ServerNet interconnect technology, Microsoft's Wolfpack clustering software, and its own expertise in building Intel-based servers, Compaq is setting itself up to be the first vendor to deliver clustered servers based on Intel's forthcoming Merced chip-possibly even beating Merced co-developer HP o
ut of the gate. Compaq is also positioned to stay one step ahead of competitors building their own Merced-based systems. Merced, due in 1999, is a 64-bit hybrid RISC/CISC chip tuned for high-end systems.
"When they can put Tandem multiprocessing systems on Compaq hardware, we have a new market," says Walter Johnston, VP of service development at telecommunications provider Nynex in White Plains, N.Y.
The technology jewel in the Tandem crown, ServerNet lets Compaq connect multiple computers to share data in memory and on hard disks so they can act as one large system (
see related story
). Unisys, Compaq, and NEC have licensed ServerNet, and Compaq says it will continue licensing it to others in the industry. Tandem should help Compaq move quickly to the Merced chip because it produces small numbers of highly customized servers, called the Himalaya line, say analysts. "Now they'll have the resources to do it right," says Rob Enderle, a senior industry anal
yst with Giga Information Group in Santa Clara, Calif. "They'll have the money to hang on to the skilled employees."
Changing Landscape
Analysts say the planned acquisition, the largest by a PC vendor, is the most dramatic evidence yet that traditional PC companies are a dying breed. Already, other desktop vendors have been scrambling to add a server business to their mix. Two weeks ago, Gateway 2000 Inc. acquired Advanced Logic Research Inc. for the company's high-end servers and reseller channel. Prior to that, PC maker Micron Electronics Inc. bought server manufacturer NetFrame Systems Inc.
"There's an infrastructure gap between what a PC company can deliver and what an IBM or HP can deliver, and Compaq's trying to close that gap," says Joe Barkan, research director at Gartner Group Inc., a research firm in Stamford, Conn.
Nynex's Johnston says he's intrigued by the prospect of users' buying low-cost, high-end IT equipment from a former PC company. He says being able to buy Compaq
hardware with Tandem's fault-tolerant technology is "two or three years down the road, but the potential is high."
In the meantime, customers say, Compaq must prove that its new sales force has the ability to push all the company's products in Tandem's traditional markets. "The key to the future is whether Compaq can deliver NT products into the telecom marketplace," says Nynex's Johnston. "The contacts you use to buy desktop computers aren't the same ones you use for servers. The gold at the end of the rainbow is the Tandem sales force."
The integration of the two sales groups will be a challenge, say analysts. "Compaq lacks the resources for total asset management, finance, and leasing, and the professional services that HP and IBM have. This doesn't buy that for them," says John Dunkle, president of research firm Workgroup Strategic Resources Inc. in Portsmouth, N.H.
But Pfeiffer remains committed to his goal. "We said we'd build the infrastructure if we needed it, and we've begun that," he sa
ys. "This moves us further along toward that goal. We know what it takes to get there."
Compaq customers applaud the deal. "Anything Compaq does to increase the reliability of their servers is a plus for us," says Britt Mayo, IT manager
at Pennzoil Co. in Houston. "They've shown us their road map, and this fits right in."
Tandem CEO Roel Pieper, who becomes a senior VP at Compaq under the deal, says Tandem's efforts to integrate Windows NT with its massively parallel and clustering technologies will bring the Wintel platform to the enterprise faster than other companies' efforts. Windows NT will account for 10% of Tandem's revenue by year's end, Pieper says.
Compaq officials privately concede that with the combined company's ownership of server technologies, the transition to the Merced platform becomes even more critical. Industry analysts agree. "Compaq will get an advantage in the transition to Merced because it will have internal contact with a company that has deployed a Merced-class product,
" says Giga Group's Enderle. "HP will probably stay with HP-UX until they have to switch. Tandem really wants to grab market share, so they will shift faster to Merced." Says an HP spokesman, "We're completely behind Merced."
Showing The World
Tandem officials say their company's support of NT will convince the likes of SAP and Baan to optimize their enterprise applications for ServerNet clustering. "Our NT technology was the catalyst. For the first time, we showed the world what NT can do," says Enrico Pesatori, president and chief operating officer of Tandem. That expertise has prompted Compaq to consider moving its entire server operation to Tandem's Cupertino, Calif., technical facility.
At the same time, Compaq continues assembling the pieces for a full enterprise solution. Last week, the company announced integration of its server-management system, Insight Manager, with Computer Associates' Unicenter TNG distributed enterprise-management software. That lets managers receive detailed
information-such as user status, application inventory, and hardware configuration-on all Compaq servers throughout the enterprise through Unicenter's central console.
It's not the first such relationship for Compaq. The company has already worked with Tivoli Systems Inc.-CA's chief rival in the systems-management field-in creating a module that integrates Insight Manager with Tivoli's TME 10 enterprise-management platform.
Compaq's ascent has included a number of acquisitions. Over the last two years, it has acquired networking hardware vendors Thomas Conrad Co. and NetWorth Inc. Early this month, the company introduced 14 internetworking products that resulted from those acquisitions, including hubs, switches, adapters, and fax modems.
But none of Compaq's prior moves has been as aggressive as the Tandem acquisition. Tandem user Rich Knauss, division VP of information systems at telecom reseller Volt Delta Resources Inc. in Orange, Calif., is wary. "I haven't seen a perfect merger yet," he says
. "People are worrying. What happens to Himalaya? I believe they'll at least continue to support what's out in the field."
-with Martin J. Garvey, Gregory Dalton, Monua Janah, Caryn Gillooly, and John Foley
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ompaq Computer's agreement last week to acquire Tandem Computers Inc. gives the one-time PC box-mover control of technology that will enable it to set the direction for Windows NT-based clustered servers.
