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The Collapse of DEC
On the 26th of January 1998, a news flashed all over the computer world that struggling financially DEC was purchased by Compaq Computer Corporation and the deal was about to be approved by the upcoming shareholders' meetings of both industry giants. Shareholders of DEC ratified the agreement on the 2nd of February 1998. The amount of sale was 9.6 billion USD, much higher if compared to the company's market capitalisation prior to the acquisition of about 7 billion USD. The integration process of DEC functional units into the business structure of Compaq had been completed about half a year later with the legal end of DEC when their shares were delisted from the New York Stock Exchange on the 11th of June 1998. Initial negotiations between DEC and Compaq started in 1995. The deal fell through in 1996 because top management of DEC insisted on a merger, not an acquisition. Nevertheless, here comes a question: how could it happen that a huge company (in figures of 1989: almost 130 thousand of personnel, gross revenue of about 14 billion USD per year, i.e. the second largest company in the industry after IBM) which held a very high R&D potential and significant manufacturing facilities, was forced to sell itself to a large computer building company from Texas? There was no single answer to this question, though reasons mentioned were numerous and various.
A long time ago, Kenneth Olsen, who was a founder, president and CEO of DEC until almost the end, said that well engineered products would sell themselves. So, there is no real need in advertising campaigns or other instruments of market promotion. He also mentioned that there is no reason anyone would want a computer at home. Perhaps these thoughts were correct in those "old good times" when computer equipment was manufactured in limited quantities by professionals and for professionals, thus cost a hefty amount per unit. However, this assumption was no longer valid in the 1990's when computer equipment was sold in million units per year, and a very regular computer could be taken together using a screwdriver and parts from the nearest computer shop for an hour of free time maximum. Besides it would cost over 10 times less than a wardrobe-like one from those "old good times" mentioned previously. Finally, nothing should prevent you from ordering a whole working box right from that retail shop with a free delivery. Considering that such a regular machine would be purchased most likely not by a professional manager realising clearly what TCO (Total Cost of Ownership) stands for, but by an aunt Marge or a young prankster Johnny making no difference between transistor and resistor, so such customers should be motivated definitely not by engineering advantages of a potential purchase.
When the Alpha architecture was in the very beginning of its way to the market, top managers of DEC made a great strategical mistake. First prototypes of EV4 were presented on a computer conference in February of 1991. There were engineers of Apple Computer admitted among others, and they were looking for a new processor architecture to power their company's future computers. They were impressed by advantages of EV4 indeed. John Sculley, Apple's CEO of those days, met with Kenneth Olsen in June of the same year and offered him to use the new processor of DEC in future Macs. Olsen refused the offer saying that the VAX architecture hadn't reached its end-of-life yet and EV4 was still a work in progress. Several months later, rumours said that new Macs were to be powered by PowerPC processors designed and manufactured by the alliance of Apple, IBM and Motorola. So, DEC had lost an excellent opportunity to achieve good long term sales of Alpha hardware and to promote the architecture on the desktop market through a powerful strategic partner, but gained a competitor instead. William Demmer, a former vice-president of VAX and Alpha divisions who resigned in 1995, said in his interview to the Business Week published on the 28th of April 1997: "Ken did not want the company's future to run on Alpha."
DEC manufactured Alpha processors as well as accompanying system logic sets and numerous peripherals at the factory of their own in Hudson (Massachusetts, the USA). It designed and produced OEM available mainboards for desktops and workstations called "Evaluation Board" or "AlphaPC". Their assortment was rather limited though. Neither of them supported multiprocessing, though all DEC Alpha powered servers except of entry level models were multiprocessors. However all mainboards were engineered very well, though expensive pretty much like Alpha processors. Their layout schemes were available for public access, so several companies (Aspen, Polywell, Enorex, etc.) manufactured fully qualified clones. The only company to develop and produce proprietary designs was DeskStation. In general, it could be said for a fact that DEC considered a priority to produce workstations and servers of their own, but didn't bother to fill the market with their basic components. Of course, this approach offered more income in the near future, but there was no chance to establish a strong presence on the highly competitive desktop or workstation market this way.
Despite all attempts taken, DEC failed to make prices on their Alpha processors, system logic sets and complete mainboards affordable to most potential customers. For example, the 266MHz and 300MHz versions of EV5 were offered in the beginning of 1995 for 2052 and 2937 USD respectively in quantities of 1000 units. It was a huge profit margin even if to take into account average estimated manufacturing costs of 430 USD per unit. Considering price per performance of SPECint92, EV5 cost about 2 times higher than competitive RISC designs. Although DEC Alcor, a standard system logic set for EV5, was offered much cheaper — 295 USD each in lots of 5000 units. Nevertheless, the only Alcor based mainboard from DEC, EB164 with 1Mb of B-cache, bundled with a processor and 16Mb of operating memory, carried a price tag of about 7500 USD. By the way, 16Mb was insufficient to run many applications on Alpha even those days.
Although Alpha was declared an open architecture right from the start, there was no consortium to develop it. All R&D actions were handled by DEC themselves in cooperation with Mitsubishi sometimes. In fact, though the architecture was free de jure, most important hardware designs of it were pretty much closed de facto. A licence had to be purchased if could be at all. Of course, it wasn't that thing helping to promote the architecture. For instance, if they kept EV4 and EV5 designs proprietary but let LCA4 go free without any licence fees or other obligations implied, it could be a strong move shaking the desktop market well. DEC offered to licence manufacturing rights to Intel, Motorola, NEC and Texas Instruments soon after the introduction of EV4. However, all these companies were involved in various projects of their own and didn't want to participate. Perhaps the conditions were unacceptable or something else.
After all, even the fastest computer without an operating system and accompanying software is just an expensive source of noise and an environmental heater. DEC targeted their Alpha hardware for Windows NT, Digital UNIX and OpenVMS following this priority order exactly. Could be not bad, but...
Windows NT was an operating system designed for users when right out of the box. Not for programmers since there were no software development tools supplied. Therefore it was dependent heavily upon precompiled applications, commercial notably. In fact, there was a huge difference in numbers of Alpha- and i386-ready software titles for Windows NT. Although DEC offered the FX!32, an excellent emulator and translator of i386 code to Alpha released by Anton Chernoff's team in 1996. While being a very useful solution itself, it couldn't help with performance degradation of 40% on average if compared to the same source code compiled natively. Next, there were device drivers and FX!32 was absolutely of no help in this area. Considering the fact that not so many hardware manufacturers honoured the Alpha architecture enough to release any of them in public, users had to rely mostly upon Microsoft and DEC. Although Microsoft didn't develop device drivers themselves for third party hardware, they put some pressure on device manufacturers to supply Windows NT compatible drivers for WHQL testing on i386, Alpha, PowerPC and MIPS. These drivers were included with distributions and service packs for Windows NT. Microsoft announced to discontinue development of Windows NT 4.0 on MIPS on the 17th of October 1996 when NEC, the last vendor who offered MIPS powered workstations with Windows NT, terminated their product line focusing entirely on i386 compatible workstations. It didn't take long for Microsoft to drop the development on PowerPC, too, which happened on the 6th of February 1997 due to low sales of PowerPC based systems. Apple sold less than 4 million PowerPC Macintoshes in 1996 while top vendors together sold over 50 million computers with Intel processors. Alpha appeared to be the only non-i386 platform with active Windows NT development. On the other hand, Windows NT, 3.51 as well as 4.0, was unable to utilise the 64-bit Alpha hardware to the full extent because it was a 32-bit OS and couldn't take advantage of 64-bit virtual addressing, though it wasn't critical on the workstation market back in the day. Anyway, all these issues didn't prevent DEC from promoting their Alpha systems with a slogan "Born to run Windows NT". In general, such an OS shouldn't be positioned as the primary for the Alpha architecture, though having it available as an option was a big advantage on the workstation market.
This list of mistakes accomplished by DEC could be expanded even more. Although the other ones are either of lower importance to those mentioned above or not related directly to the Alpha architecture. Anyway, the following final conclusion could be derived from the author's point of view: DEC had spent a great deal of time to make as much money as possible with the Alpha architecture, but made almost no effort to help the architecture itself.
The board of directors, motivated by numerous failures of the company in the late 1980's and early 1990's, asked Olsen to step down in June of 1992 and appointed Robert Palmer instead. He did a hard try to reorganise the company's business in 1994 by turning the existing matrix model, where departments different functionally cooperated to make a decision, into a traditional vertical model, where authorities and responsibilities were defined clearly from the very top to the very bottom of the business. From 1991 to 1994, the company's net losses exceeded 4 billion USD including 2.16 billion just from July of 1993 to June of 1994. Although those in turn included 1.2 billion spent on the restructurisation which involved cutting about 20 thousand jobs. So, the total number of personnel was reduced to 85 thousand. According to Palmer's programme, the company had to get rid of many divisions considered non-priority, so the global sale began.
In July of 1994, the Storage Business Unit manufacturing disk and tape drives was sold to Quantum for 348 million USD. Well, this division was out of favour due to a fiasco of the company's first thin film hard drives (DEC RA90 and RA92 — 1.22GB/3600rpm and 1.51GB/3400rpm respectively, DSA/SDI interface). They were expected to hit the market by the end of 1988, but it didn't happen until summer of 1990 due to design flaws. As a result, DEC lost their leadership in the HDD business to Imprimis, a subsidiary of Control Data Corp. (CDC), which announced their thin film Wren VII 1.05GB/3600rpm 5.25" full height SCSI drive in November of 1988 and actually delivered it to the market next year as Seagate ST41200N/ST41200ND. Imprimis was sold to Seagate in June of 1989 for about 450 million USD in cash and securities. Seagate appeared to be the first storage company to break throgh a 1GB barrier for HDDs. Maxtor to follow, and DEC to manage losses. About Quantum, it did have a quite successful HDD business back in the time, but their products had never reached high end before and were very popular on the lowest end. Quantum Bigfoot series HDDs produced since 1996 in 5.25" form factor and 3600rpm rotation speed were an excellent example. They wanted to expand their operations to the profitable SCSI market and DEC had a lot of experience in this area. DEC storage products of the StorageWorks family were based on RZ series SCSI HDDs. Some of them were manufactured by Micropolis, Conner, Quantum and others, though some models were proprietary designs engineered by a team in Shrewsbury (Massachusetts, the USA). They also designed and manufactured successful DLTs (digital linear tape drives) since 1984 which were another acquisition objective for Quantum. In brief, the former DEC technologies and personnel allowed Quantum to establish their Atlas family of 7200rpm SCSI drives, later expanded to 10K and 15K rpm. This product family continued to be developed after the 50%/50% merger of the Quantum HDD business with the whole Maxtor company in October of 2000, and was phased out soon after the 16%/84% acquisition of Maxtor by industry leader Seagate in December of 2005 because of Seagate's own Cheetah product family of high speed SCSI HDDs.
In August of 1994, the Database Software Unit was sold to Oracle for 108 million USD in cash. The deal included the Rdb relational data base management system (RDBMS) as well as the CDD/Repository and DBA WorkCenter software. Although the RMS (Record Management Services) data base software was excluded from the deal because it was integrated deeply into OpenVMS and couldn't be removed. DEC supported Rdb 6.0 on OSF/1 AXP, OpenVMS (VAX and Alpha), Windows NT (i386 and Alpha). Oracle discontinued support for Rdb on all those operating systems except OpenVMS with the 7.0 release and phased out their VAX branch in favour of Itanium later.
DEC established an alliance with Olivetti, an Italian computer vendor, in 1992 to promote products mutually. They also purchased a 7.8% stake in Olivetti for 287 million USD. On the 24th of August 1994, DEC redeemed this stake for 150 million USD. That was almost half the price paid 2 years ago. Not the best investment indeed. Although both companies continued their partnership until 1997 when Olivetti decided to shut down their computer business.
In November of 1997, the Network Product Business Unit was sold to Cabletron for about 430 million USD in cash, securities and product credits. In addition to tangible assets, Cabletron did acquire about 250 network related patents and 900 employees not including those 200 people who were lucky enough to have their jobs kept at DEC. The amount of those product credits was undisclosed, so it was difficult to estimate the real sale price. By the way, Cabletron laid off about 600 people after shutting down two manufacturing facilities the next month and lost about one half of the market capitalisation for that single month since the deal with DEC. In fact, Cabletron wasn't really interested in those DEC network products or technologies or even employees. They wanted the sales network. It didn't work out anyway. The company jumped from one trouble into another over the following years. The remains of the former DEC network division with 130 employees were sold to Gores Technology Group in May of 2000 finally.
The fall of DEC was loud enough. It sued Intel in May of 1997 accusing in infringements upon 10 patents issued for the Alpha architecture while designing Pentium, Pentium Pro and Pentium II processors. Intel started a lawsuit against DEC in September of 1997 claiming their 14 patents to be dishonoured while designing Alpha processors. The peace agreement was reached on the 27th of October 1997 when both companies took their complaints back. DEC licenced to Intel manufacturing rights for all their hardware available except of Alpha property and also agreed to support the future IA-64 architecture. In exchange, Intel purchased from DEC the factory in Hudson together with designing centres in Jerusalem (Israel) and Austin (Texas, the USA) for 625 million USD. They also agreed to manufacture Alpha processors for DEC in the future. Additionally, an agreement was signed to cross-licence patents for 10 years. The deal was finalised on the 18th of May 1998 when Compaq had already started to integrate core divisions of DEC with about 38 thousand of personnel. Many of them were laid off in the very near future though. By the way, Compaq employed about 32 thousand of personnel on its own prior to the acquisition.
It needs to mention that not so long before the end of DEC and soon after many talented engineers who actually created that DEC's realm left for other employers. Derrick Meyer and James Keller went to AMD to design the K7 and K8 respectively. Daniel Leibholz was hired by Sun to create UltraSPARC V. Richard Sites, one of the primary Alpha architects, also abandoned the new owner. Intel appeared to be lucky even less. The StrongARM architecture which was purchased from DEC together with the factory and designing centres seemed to be at a dead end because none of those chief architects who developed StrongARM-110 previously (Daniel Dobberpuhl, Richard Witek, Gregory Hoeppner and Liam Madden) decided to join the Chipzilla. Even more, Witek's team which worked in Austin on the next StrongARM core resigned completely. So, Intel had to relocate engineers who developed i960 previously to work on this project literally from the scratch.
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