Compaq's missed opportunity?

We have to wonder what Compaq was thinking.

No, we don't question why the PC giant decided to dole out nearly $US10 billion for Digital Equipment Corp.'s PC, microprocessor and OS businesses -- and turn itself into a $US37.5 billion powerhouse in the process.

We don't wonder at Compaq's wanting to capitalise on Digital's enterprise services know-how -- an area in which Compaq has been known to be lacking in expertise.

And we certainly have no grounds to suggest that Digital isn't a worthy complement to Compaq's $US3 billion acquisition of Tandem Computers in June 1997.

What's really got us puzzled is how did Compaq manage to miss getting Digital's networking business as well?

Four short months ago, Cabletron Systems snatched that up for a mere $US430 million.

Now, we don't pretend to know what goes on in the back rooms of big business as multi-million dollar merger agreements are worked out. But we're pretty certain the logistical complexities of these things prevents them from happening overnight.

Except, of course, in the case of a hostile takeover, where the "acquiree" is taken unawares. But in both the Compaq and Cabletron deals, Digital seems to have been a willing partner -- which means a certain amount of unadulterated gigoloing must have taken place in the days and weeks before each merger.

Did Compaq know Digital wanted rid of its network wares? If so, why didn't it grab them?

Back in June, Compaq's acquisition of Tandem almost universally was heralded as a good buy, in terms of the PC maker gaining enterprise-class server and clustering technology.

But industry analysts who commented on the deal at the time said the one thing Compaq sorely needed to plug the gaping hole in its enterprise computing strategy was network plumbing -- exactly the thing it could have gotten from Digital if it had acted faster.

Now, of course, Compaq may in fact be playing a very smart game. Maybe, just maybe, the idea is to let Cabletron pare Digital's networking business down to a profitable concern, and then -- swoosh! -- Compaq will sweep down and grab a lean, mean Cabletron-Digital machine...

...Nah. We can't see Cabletron -- even with its new kinder, gentler attitude -- being all pally with Compaq. Because you see, Compaq would be the boss -- it's bigger, better known and better established in the computer industry as a whole and...well, bigger.

So it looks like Compaq simply missed an opportunity to seize Digital's networking business when it could.

If a similar chance to acquire a networking company should arise again, Compaq should think twice before letting it pass on by.

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