December 13, 1999 - Compaq Computer Corp. and South Korea's Samsung Electronics
Co. Ltd. are planning to announce Monday a preliminary agreement to spend $500
million to advance the manufacturing and marketing of Compaq's 64-bit Alpha
microprocessors and computer systems. The "memorandum of understanding" is aimed
at expanding Alpha into new markets such as fixed-function servers, network
appliances and Internet network infrastructure, Compaq executives said. Samsung,
which owns 87 percent of Alpha Processors, builds the chips under a Compaq license.
Compaq, which also owns a small stake in API, won't expand its ownership, Compaq
vice president Jesse Lipcon said.
deal comes as Compaq has been trying to improve its Alpha-based minicomputer
line, retargeting its marketing efforts to technical and high-performance computing
niches. It recently decided to quit selling the systems with Microsoft's Windows
NT software, thus abandoning the general-purpose market. Analysts and computer
executives said Compaq needs to invest to repair the tarnished image of the
Alpha technology, which it acquired when it purchased Digital Equipment Corp.
in June 1998. Alpha chips were once hailed as a speedier alternative to Intel's
microprocessors in general-purpose computers. Samsung has committed to developing
technologies that will boost chip performance. Samsung is the largest supplier
of 64-bit Alpha microprocessors. He said the $300 million includes Compaq's
purchases of Alpha chips from Samsung during the next 12 months; an undisclosed
amount that Samsung will pay for the new licensing rights; and the creation
of a fund to invest in Linux software makers and promote the use of Alpha-based
Markets primarily affected are the high-end technical computing and server markets.
The incorporation of Linux is an attempt to bring Alpha into more mainstream
computing environments. Compaq/Samsung have also expressed an intent to move
Alpha into areas such as network appliances, but Alpha's present cost structure
does not make this a simple task. If Compaq can leverage Linux into a significant
sales increase for Alpha-based systems, this will drive Alpha costs down, leading
to further mainstream market penetration.
aggregate sales figures for Alpha-based systems are estimated at $3 Billion
for Tru64 Unix and $4 Billion for OpenVMS systems, these numbers are potentially
deceiving. OpenVMS, although a solid, powerful, robust OS, is primarily considered
a legacy system, and its revenues are not likely to increase. Tru64 Unix is
also powerful, but will be fighting for market share with IA-64 systems. $7
billion is a lot of revenue, but if this initiative is not successful - especially
the Linux aspect - then Alpha's days may be numbered as a CPU alternative to
Intel. (See TEC Technollogy Research Note: "Compaq's
Alpha - Moving Toward Its Omega?" August, 1999) Thus, it behooves Compaq
to commit fully to making this effort a success. If Compaq is not willing to
do what it takes to make Alpha a cost-effective alternative, as well as a volume
player in the marketplace, then it should either sell off the remainder of Alpha
to someone who will commit, or cut their losses.
Despite its previous problems (mainly marketing-related, vs. technology-related),
the Alpha CPU is still a good piece of hardware. However, users should adopt
a "wait and see" attitude with this announcement. No products are announced,
no pricing structure is in place, only expressions of intent. Purchasing decisions
should not be affected by this announcement.