The End of DEC

On January 26, 1998, the computer world heard the news that DEC being in critical financial condition was purchased by Compaq, and the deal was about to be approved by the upcoming shareholders meetings of both companies. DEC's shareholders ratified the agreement on February 2, 1998. The deal was 9.6 billion USD, compared to DEC's estimated market capitalization of about 7 billion USD. The integration of DEC's functional units into Compaq's business structure was finished in about half a year thus bringing DEC to its official end: its shares were taken off the New York Stock Exchange on June 11, 1998. I would like to draw your attention to the fact that the negotiations between DEC and Compaq started back in 1995, but led to nothing in 1996 because DEC's high management insisted on a merger, not an acquisition. Nevertheless, you have every right to ask: how could it happen that a huge company (according to the reports of 1989 it had almost 130 thousand employees, annual gross revenue of about $14 billion, i.e. it was the second company in the industry after IBM) with very high R&D potential and significant manufacturing facilities had to sell itself to a large system builder from Texas? There was no definite answer to this question, though the reasons mentioned were very numerous. Let’s talk a bit more about this.

Long time ago, Kenneth Olsen, a founder, president and CEO of DEC until almost the very end, said that well-engineered products would sell themselves. That said there is no need to do any advertising campaigns or other marketing promotion. He also mentioned, that there is no reason anyone would want a computer at home. Perhaps, these thoughts were correct in those " good old times", when computer equipment was manufactured in limited quantity by professionals and for professionals. But this is definitely not the case in the end of the XX century, when millions of computers were sold every year, and any mainstream computer could be assembled with just a screwdriver and the parts from the nearest computer shop within one hour max. Finally, you can even purchase the whole system already assembled in the same shop, with a free delivery to your door. And considering that this mainstream machine would be most likely purchased not by a professional manager, knowing what TCO (Total Cost of Ownership) means, but by some Mary the baker or little Johnny, who make no difference between a transistor and a resistor, such customers should not be motivated by the engineering advantages of their potential purchase. Mistake #1.

Even in the very beginning of the Alpha architecture history, DEC's high management made a great strategic mistake. As is known, first prototypes of EV4 were presented on a computer conference in February, 1991. Among others, there were engineers from Apple Computer, looking for new processor architecture to power company's new computers, and they were impressed by advantages of EV4. John Sculley, Apple's CEO, met with Kenneth Olsen in June of the same year, and offered him to use the DEC's new processor in future Macs. Olsen refused the offer, saying that the processor was not ready for the market yet and the VAX architecture hadn’t yet exhausted its potential. Several months after, rumors said that new Macs would be powered by PowerPC processors developed jointly by Apple, IBM and Motorola. William Demmer, a former VP of VAX and Alpha divisions who resigned in 1995, said later in his interview to the Business Week (April 28, 1997): "Ken did not want the company's future to run on Alpha." Mistake #2.

DEC manufactured Alpha processors, as well as accompanying chipsets and numerous peripherals, at its own factory in Hudson (Massachusetts). It designed and produced mainboards (limited number of modifications) exclusively for desktops (they were even called Evaluation Board or AlphaPC). Neither of these boards supported SMP, though almost all Alpha servers by DEC were multi-processor systems. Nevertheless, all mainboards were very well-engineered, though cost quite a lost, just like Alpha processors. Their layout circuitry was available for public access, so several companies (Aspen, Polywell, Enorex, etc.) manufactured fully qualified clones; the only company to develop its own design was DeskStation. In general, it could be stated for sure that DEC considered the production of their own workstations and servers their top priority, but did not take seriously the market of computer components for the same workstations and servers. It's possible to survive like that, but not to conquer the market. Mistake #3.