Mr Eckhard Pfeiffer, Compaq Computer's chief executive, has achieved his ambition to transform the world's largest personal computer manufacturer into one of the top three companies in the computer industry ahead of schedule.

Compaq's record-breaking $9.6 billion (£6.8 billion) acquisition of Digital Equipment the biggest deal in the global IT industry creates a new computer industry powerhouse with products ranging from laptop personal computers to "enterprise servers" on which large companies run their IT systems.

Based on last year's results, the revenues of the two companies were $37.5 billion, putting Compaq just ahead of Hewlett-Packard, which had computer revenues last year of about $35 billion.

One significant advantage of the combination will be that it places Compaq in a commanding position in the high growth market for computer servers running Microsoft's Windows NT operating system one of the fastest growing segments of the IT industry.

Cementing a closer partnership with Microsoft was a "highlight" of the agreement, said Mr Pfeiffer, who has transformed the Texas-based PC maker since taking over as chief executive at Compaq in 1991. At that stage the group ranked fifth in the fiercely competitive worldwide PC industry. Although Compaq has long enjoyed close collaboration with Microsoft, it had "always been looking over our shoulder to see what Microsoft was doing with Digital".

An important advantage of the combination will be that it gives Compaq a high-level entry into some of the world's largest corporate customers. Although Compaq already sells its personal computers and PC servers to many of these, it has not been seen by most as a "strategic supplier" of IT.

The merger "will take Compaq a very long way in achieving its goal" of rivalling International Business Machines and Hewlett-Packard for leadership in the computer industry, said Mr Terry Earnest-Jones, an analyst with International Data Corporation in London.

Compaq also gains a large and growing services operation. Services integration, support and maintenance are an essential part of the industry in which it has so far had little involvement. Digital which employs 1,100 people in a software centre in Galway and a sales and support operation in Dublin has provided support services to Compaq's customers for 21/2 years through a partnership agreement understood to have triggered the first tentative merger discussions.

Services, typically a higher margin business than hardware, represent about 45 per cent of Digital's total revenues. As a result the acquisition promises to raise Compaq's gross profit margins, currently 27.6 per cent a high level for the personal computer industry but much lower than those of broader computer companies. Digital's gross margins on product sales were 37.6 per cent in its second fiscal quarter, just ended. The gross profit margin on services was 31.7 per cent.

With the Digital acquisition, Compaq will have two of the essential elements of a world-scale computer company including a broad spectrum of products and services. But it remains less than half of the size of IBM, which reported 1997 revenues of $78.5 billion.

IBM's business portfolio also includes software, which accounted for revenues of $12.8 billion last year, as well as a rentals and financing arm which recorded 1997 revenues of $3.7 billion. Software in particular now appears to be a big gap in Compaq's armory. But its ties with Microsoft help.

Compaq also lacks component manufacturing, although Andreas Barth, in charge of its European operations, says this is an advantage: "We have no intention of getting into the components business."

Digital's recent agreement to sell its Alpha chip-making operations to Intel in a so-far uncompleted $700 million deal may have encouraged Compaq to revive its earlier interest in acquiring it.

As yet unaddressed by Compaq are the considerable overlaps between its existing product line and that of Digital. Mr Pfeiffer and Mr Robert Palmer, Digital's chief executive, initially carefully avoided commenting on possible rationalisation.

But there were hints on Tuesday that job cuts were on the cards. At a press conference, Mr Pfeiffer said Digital had a way to go before reaching Compaq's level of efficiency and profitability, and that a firm integration plan would be announced in three-four months.

"We have plenty of ideas, but there's not yet been time to set up a total integration plan," he said replying to questions.

"This week, teams of Compaq employees will meet in the US, Europe and Asia with their Digital counterparts on gradually evolving new plans."

Although Digital has been through a series of painful restructurings during the 1990s including the loss of 700 jobs in Ireland in 1993 it still has 54,000 employees compared with a workforce of 133,000 at its peak. Many analysts believe even this figure will have to be trimmed.

Compaq, which has 19,000 employees including 250 in a call centre in Dublin (with target employment of 650) seems to have been encouraged to speed ahead with the acquisition because of its positive experience with the acquisition of Tandem Computer last year. Mr Pfeiffer said the two companies resumed negotiations just a few weeks ago and completed the deal in two weeks.

The acquisition of Tandem, which manufacturers large mainframe machines or "enterprise servers" was another plank in Compaq's strategy to become a full service vendor of IT systems to companies. That merger appears to have gone smoothly. But Tandem had just 8,000 employees, and the integration of Digital's much larger workforce and more extensive product range could be much harder.

In addition, the two companies' corporate cultures are strikingly different. Compaq has built its reputation and business on being a hard driving marketing and sales organisation. Digital's lengthy industrial heritage is steeped in engineering and technology "firsts". Compaq's challenge will be to ensure that Digital's strengths are transformed into an effective rival to IBM in enterprise computing.