Compaq pays the price for pulling out of networking

Compaq's decision to pull away from the networking game has cost it dearly, with the vendor forced to pay $US123 million to cancel an OEM agreement with Cabletron Systems.

Compaq last year committed to buy $US300 million worth of Cabletron equipment each year that was to be rebranded under Compaq's own name.

But Cabletron agreed to renegotiate the deal, after Compaq decided to move away from the networking business.

In recently filed documents to the Securities and Exchange Commission, Compaq agreed on a final purchase of $US85 million for Compaq-branded equipment to sell to its customers. Compaq also gave Cabletron $US25 million to remove minimum quarterly purchase requirements, and another $US13 million to pay for its costs to manufacture the branded equipment.

However, the two companies will maintain a relationship, with Compaq's professional services unit continuing to sell for the next two years Cabletron's networking equipment, and for the first time, its network management software.

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