Digital as a microprocessor and systems manufacturing company - Digital Equipment Corp

Digital's reputation for rock-solid design and engineering capabilities has grown over almost three decades. Its track record at building and at getting those products to end users hasn't been quite as stellar. Remember the Rainbow, the MicroVAX 1 and the VAX 9000.

In recognition that its former development and sales model has been rendered less than effective, Digital is now building core technologies that will be sold to end users by a variety of means. Some will be sold exclusively by Digital. Some will be sold by traditional(for Digital) indirect means: VARs reselling workstations and systems. Others core technologies will be distributed through OEMs selling Alpha-based systems, a relatively new means of indirect distribution for Digital.

In the technology areas, Digital is focusing on three key core-technology businesses: microprocessors (Alpha), systems (PCs and VAXs), software (NAS), and peripherals (disk drives). We review Digital's Alpha and systems initiative here; storage products are examined on page five.

Microprocessors and Systems

Digital claims Alpha win provide a scalability ratio of 1,000 to one, and will last for at least 25 years. With Alpha, Digital is following the lead of the major IT industry influencers HP, IBM and Sun in the race to build core RISC microprocessor technologies. This is not a role the company has successfully played to date, instead it represents a fundamental change in the company's business strategy.

Digital carries four strategic imperatives with Alpha:

* to protect and expand its VMS base;

* to re-emphasize its Unix commitment, focusing on technical markets;

* to deftly juggle its workstation positioning;

* and finally to introduce a 64-bit desktop.

The four, however, are not necessarily additive. Some are mutually exclusive. The table below outlines three different strategies in Digital's two main markets: commercial and technical.

In general, the most likely strategies (protect and expand VAX base), offer the least growth. The riskier strategies offer higher growth potential, but are somewhat less likely.

Juggling Alpha's different objectives has negative implications for Digital's overall outlook. Catering to the VAX commercial base may weaken its high-volume OEM strategy. Focusing on the commercial Unix option may alienate the 60% of the VAX base which has not stated a desire to move to Unix-based solutions.

VAX Base in Transition

Digital has targeted large marketing and technical forces at the problem of keeping its installed base happy. Commercial VAX customers will be offered financial incentives that target not just the issues of software conversion but asset values as well. Thus, Digital hopes to conduct an ordered, simplified transition. Early clustering limitations (clustering will be available Q2 1993), and lack of easy upgrades are holes in the strategy, so far.

Behind Alpha's price/performance leadership and OSF/1 support, Digital will attempt to gain share in the Unix midrange. Digital will enjoy some growth, but slowing growth overall in the Unix midrange, and the increasing presence of Intel-based systems heralds overcapacity. In technical markets, Alpha will gain customers not because of customer loyalty to Digital, but because of the price/performance, functionality and support Alpha offers.

Effect on MIPS Base

Digital is trying to develop a desktop product portfolio with Intel at the lowest price and performance points, MIPS-based DECstations in the middle and Alpha at the high end (initially). Eventually, Alpha products will range across the entire product line.

The MIPS positioning is, at best, short-term. Whilen MIPS R4000 products are set to be introduced this year, the MIPS-based product line may not have a long term future. In light of Digital's emphasis on Alpha, the MIPS products may ultimately be replaced. The small installed base of DECstations, (about 45,000 units, 3% of the worldwide workstation inventory) will not sustain the MIPS family long term.

ACE and Alpha OEM Futures

It appears that Digital is offering Alpha as a de facto additiontotheaceinitiative,againstthewishes of MIPS and some of the R4000 licensees. Nonetheless, it is unlikely that leading desktop OEMS will be seduced by Alpha technology alone. While Cray and Kubota will license Alpha, winning other OEMs may be harder.

Potential OEMs will watch Digital closely before they make a full-scale commitment to Alpha. Despite claims of a new business model, Digital still has a lot to learn about partnership. The company must shed the kind of thinking that served it well for thirty years before it can begin signing new partnerships. For example, analyzing the whole range of OEM arrangements - including licensing the Alpha design to competitors, selling Alpha chipsets to competitors, and selling Alpha-based systems to competitors - is itself a radical departure for the company.

COPYRIGHT 1992 International Data Corporation
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