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Compaq transfers Alpha technology to Intel, increases commitment to Itanium

Jun 25, 2001, 20:00 (23 Talkback[s])

By Beth Cox

Intel Corp. scored a coup of sorts today when Compaq Computer Corp. signed a multi-year deal that accelerates the availability of next-generation enterprise servers based on Intel's Itanium processor family.

Compaq said it would transfer key enterprise processor technology to Intel and consolidate its entire 64-bit server family on the Itanium architecture by 2004. Financial terms were not disclosed.

The move marks the death knell for the Alpha chip technology that Compaq acquired through its 1998 purchase of Digital Equipment. Compaq will deliver an additional generation of Alpha-based servers through 2003, with a new system based on the Alpha EV7 microprocessor scheduled for introduction late in 2002.

Compaq said it will also design and build new NonStop Himalaya systems based on MIPS chip technology until the first shipments of Itanium-based systems are available in 2004.

The two companies said they will work together to expand marketplace adoption of the Itanium processor family. Intel was up 91 cents on the news in mid-morning trading.

As part of the deal, Compaq is transferring significant Alpha tools and engineering resources to Intel, and is granting licenses to Compaq's Alpha microprocessor technology and compilers.

Over the next couple of years, several hundred Compaq microprocessor engineers, compiler experts and infrastructure employees will be offered jobs with Intel. A portion of these engineers will remain with Compaq to complete a next-generation Alpha microprocessor development effort currently under way, but will transfer to Intel as their projects are completed.

Itanium, which was formally delivered a few weeks ago but has been under development for several years, is Intel's effort to get its chips into the heavy-duty computers that do most of the work in enterprise environments.

Houston-based Compaq, meanwhile, reportedly is considering plans to cut another $200 million in expenses after slashing about 9,000 jobs in April. The company has been struggling in a PC price war exacerbated by the fact that 2001 appears to be the year when PC sales for the first time are forecast to decline year-over-year.

"Our move to the Itanium architecture provides customers and independent software vendors with the most compelling roadmap to next-generation server technology," said Michael Capellas, chairman and CEO of Compaq. "Customers get increased performance, price/performance and application support. We believe Intel's architecture is the best choice for the enterprise."

Just how does today's announcement fit into the larger corporate IT landscape?

Zona Research had this to say in a note to clients:

"Overall, we believe the Compaq/Intel agreement reflects a simple economic truth about hardware: the growing disparity between increasing chip performance and decreasing prices has led the industry to a position where diversity is not necessarily better.

"Increasingly, as hardware profit margins ease toward zero, boxes are coming to be regarded as loss leaders that vendors can use to initiate and deliver ongoing management and consultant services to their corporate clients.

"We expect that Itanium's position in the market will be a work in progress, but today's announcement aggressively proffers that Intel is definitely no longer just about the desktop. For Compaq, this announcement illustrates both remarkable opportunities and challenges. On the opportunity side, embracing a single architecture would allow a new platform focus that could more efficiently (and profitably) address their customer's needs. The move could also produce savings in product support and perhaps improve customer satisfaction. But customer satisfaction will also be a key challenge in the company's journey to an Itanium future."

Compaq stock was up 26 cents to $13.76 in mid-morning trading. For the three months ended March 31 of this year, Compaq sales fell 3 percent to $9.20 billion. Net income before accounting changes fell 76 percent to $78 million.

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