Samsung to Produce Compaq’s Alpha Chip in $500-Million Deal

Compaq Computer Corp., the world’s No. 3 computer maker, said Sunday that it has picked South Korea’s Samsung Electronics Co. to manufacture its newest Alpha processor as part of a $500-million agreement.

The companies will work to expand the market for the Alpha chip, one of the world’s fastest microprocessors. Samsung makes the current Alpha chips for Houston-based Compaq. The two companies will put a total of $500 million into the project. Detailed terms weren’t disclosed.

“The marriage is a good and healthy one,” said Rick Frazier, vice president of marketing for Compaq’s Alpha server division. “We wouldn’t be adding to it if it weren’t.”

The agreement comes amid speculation by analysts and computer industry experts that Compaq is considering licensing the Alpha design to IBM Corp. as well.

A Compaq spokesman declined to comment on possible talks with IBM, although he said Sunday’s agreement doesn’t preclude Compaq from licensing the Alpha design to other manufacturers.

Compaq acquired the rights to the Alpha when it bought Digital Equipment Corp. last year. Sales of servers and workstations that use the chip have declined since the purchase.

Under the agreement, Compaq and Samsung will increase marketing for Alpha servers, promoting it as a machine for fast-growing markets such as powering Internet networks.

Samsung will invest in manufacturing advancements for the chips, such as using copper connectors.

Samsung has predicted that the market for the Alpha could increase next year to $140 million from $100 million.

Last month, Compaq said its pretax profit will be reduced by as much as $250 million in the fourth and first quarters because it plans to stop enabling its Alpha servers to run Microsoft Corp.’s Windows operating system.

Customers who want to run Windows on a Compaq server will be directed to its ProLiant line, which uses Intel Corp. chips, the company said.

Alpha servers now will run only the Unix and OpenVMS operating systems, competitors to Windows.

On Friday, Compaq shares closed at $25.06, up 6 cents, on the New York Stock Exchange.