A Boost for Intel’s Itanium

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

“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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