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
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
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
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
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
"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
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
"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
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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