FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (TMF Debit)

Compaq Computer
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20555 State Hwy. 249
Houston, TX 77070
(281) 370-0670
http://www.compaq.com

Tandem Computer
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19333 Vallco Pkwy.
Cupertino, CA 95014-2599
(408) 285-6000
http://www.tandem.com

UNION CITY, CA., (June 23, 1997) /FOOLWIRE/ -- Compaq Computer and Tandem Computers held a media conference call today to discuss their merger agreement. Attending the call was Compaq's senior vice president of enterprise business, Compaq President and CEO Eckhard Pfieffer, Tandem CEO Roel Pieper, Compaq CFO Earl Mason, and Tandem COO Enrico Pasatore. They opened the call to questions without opening remarks.

The first question asked if there would be any loss of jobs at either the Tandem or the Houston plants as a result of the merger. The companies answered that there would be no loss of jobs. That is not one of the synergies that they have in this particular deal. In fact, the real synergies deal with revenue growth, cost reductions in the area of raw materials, and some cost avoidance, but no loss of jobs.

Is this Compaq's first acquisition? They responded that this is not their first acquisition. They had two acquisitions in May 1995 and one earlier this year, Microcom in the Boston area, so this is their fourth.

Tandem has several issues in terms of financially how it has been doing. How does Compaq plan to deal with that? Tandem has been going through a turnaround and has delivered improving financial performance quarter after quarter and is on its way up. The last five quarters they have been profitable and have generated in the last 12 months close to $300 million in cash. They are growing revenue. The last two quarters were record quarters for their Himalaya systems and, in fact, four months ago they just introduced their enterprise NT systems which is really the galvanizing point for this merger. They understand where the question is coming from but think it is a little too far down in history. The last year and a half to two years has been quite a positive ride and has clearly helped to put this deal together.

If the deal had been in place in the March 31st quarter it looks like it would have been somewhat dilutive to earnings. The September quarter, when it looks like the deal will be complete, is a very strong quarter for Tandem but the subsequent December quarter tends to be much weaker historically. Give some guidance as to how this is going to affect the merged company. The company responded that first of all, for the third and fourth quarter and quarters beyond that the deal will be accretive. There are significant synergies that will play themselves out starting almost immediately for the easier ones and, as the revenue starts to accelerate there will be a lot more significant benefits. Tandem's internal forecast for the last two quarters of their fiscal year which ends in September was high-level single-digit growth and for the following year they forecasted double-digit growth. So they would say that the company is experiencing positive momentum. Compaq indicated that they have a seasonality -- they have a Q4 in their year that is bigger than a Q1 -- but they think that the importance is that double-digit growth is what they are looking for in the next few years based on this enterprise NT opportunity. As part of the Compaq organization, Tandem believes they can see 20-30% growth and if you look at that from a shareholder perspective, that is substantially better than what Tandem had hoped to do by themselves.

How are they going to divide the business? Are they going to move Tandem's NT-based systems over to Compaq's development efforts or is Tandem going to become completely responsible for Compaq's clustering technology? How is that going to work? They responded that a lot of these issues are still being worked out and at this point in time they cannot make any statement. The same is true for how the merger will happen in the field organizations in each country around the world. Initial guidelines are drawn up and will be in the hands of country managers today and they will determine how to get the maximum out of the two companies' total capabilities. Compaq is going to immediately leverage the Tandem worldwide field force. There are about 4000 major accounts, presales, and professional services people and they expect to be able to sell a lot of incremental Compaq products. The demand will be generated by that sales force and the product will be fulfilled by the Compaq reseller partners. The clustering technologies clearly will serve as the basis, most likely, for the entire NT server family.

It has been reported that Compaq aims to become a $40 billion company by the year 2000. Do they think that this is a major way to accomplish this goal? They responded that when they talked about this internal objective, they said at the time that it does not count on any major acquisitions.

How will this merger affect Tandem's existing partnerships? They think all of those partners will have to make up their minds what this means. They don't want to speak for them but feel that most of them will immediately recognize that this will place the Tandem technology and the Tandem direction in a much bigger momentum situation. Ericsson in particular in the telecommunications industry will see good opportunities to strengthen the server/net infrastructure position and blend that with the Compaq systems on the network side.

How is it beneficial to each company? It is beneficial to Compaq that it gets them a range of capabilities to deal with corporate major accounts worldwide that they have not been able to build at this stage of the company. It doubles their total worldwide sales force and the service and support organization. It gives them a solutions capability that goes way beyond what Compaq is offering today. It gives them an account servicing capability that Compaq hasn't had in the past other than through its dealers. For Tandem, the benefits are a total product offering, namely offering the entire range of Compaq products and an immediate entry into the entire space rather than building it on their own. The same applies to Compaq -- they would have had to build this over the next 1-3 years and now they are able to move forward as the strongest company in the open standards/NT space.

Discuss distribution strategies. Tandem is obviously, for their high-end equipment, continuing their current strategy and their total sales force will be selling Compaq equipment across the board. Compaq will fulfill that through their existing channels. Compaq does not intend to make any signficant changes to the strategy they have been discussing for the last three months -- continuing their focus on leadership in the indirect channel. They think, in fact, the Compaq distribution channel will see additional opportunities through fulfilling the products they can bring to their accounts, so they think that is good upside. They already sell 30% of their products through a distribution organization and that has seen increased momentum as well.

Elaborate on why the Tandem NT technology was so key in the decision to make the acquisition and relate the Tandem technology to what Microsoft is offering. The products from Microsoft and Tandem are mutually supportive and are not competitive. ServerNet is a physical communications interconnect that talks to Wolfpack as it is part of NT. The two are needed to create a cluster, so there is no competitive aspect. Both Compaq and Tandem have had a licensing and partnering relationship on ServerNet for well over a year. ServerNet in combination with WolfPack is part of their clustering capability that Compaq recently showed at both Innovate and Scalability Day and have said publicly that it is part of their product strategy for their next generation clusters for the second half of this year.

How will the deal affect Compaq's existing relationship with Digital Equipment Corporation for professional services? They have a relationship with Digital Equipment. That is in multi-vendor service and support for customers that want a consistency of service across various countries they are in. They expect, like all of their service relationships, that they will continue those.

What role will the MIPs processor architecture play in the future if at all? Tandem responded that they have already embarked on a pretty strong Intel play with their NT product line. They have the ability in their architecture to move to Intel if that is necessary. At the moment they have two new lines in both Himalaya and UNIX on MIPs but obviously they will have to make a very close analysis of the market. Intel is making a lot of progress around the Merced architecture. Together they will analyze what the best product platform is.

What other areas to they need to fill out to become the number 3 computer manufacturer? They said that with their year 2000 goal they will be among the top three. With the acquisition they have a capability that may accelerate their plans. As soon as they start consolidating their results, they believe Compaq will move up another notch in the worldwide rankings and be in the number 4 position in 1997.

Will they continue to use the Tandem brand name? Yes.

Who approached whom and when? They had legal contracts and licensing arrangements going back for well over a year.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.