IBM, Dell in US$16 Billion Deal

IBM Corp. and Dell Computer Corp. today announced a US$16 billion technology pact, calling for Dell to purchase storage, microelectronics, networking and display technology from IBM.

The agreement will help Dell's efforts to expand the line of products it has started to develop in-house, particularly servers, storage products and notebook PCs, according to Mike Lambert, senior vice president of Dell Enterprise Systems Group.

Dell also will benefit from access to IBM's research and development laboratories, which are well-funded and widely recognized as leaders in R&D, officials said.

"For us to be able to tap into that resource ... gives us an awful lot of flexibility as we design our products," Lambert said, speaking at a New York press conference today.

Under the terms of the seven-year agreement, Dell will include the IBM technology in its computer systems. The agreement is expected to include IBM advanced technologies such as copper microprocessor technology. The pact also allows for broad patent cross-licensing and co-development of technology between the two companies, officials said. Dell will use IBM's technology on a non-exclusive basis, though officials did not rule out exclusivity at a future date.

The first IBM products that Dell will incorporate into its systems will include disk drives, network adapter cards, flat panel displays, high performance static random access memory (SRAM) and custom chips, officials said.

The pact is believed to be the largest of its kind ever announced, and underscores IBM's role as a supplier of advanced technology, according to James Vanderslice, senior vice president and group executive, IBM Technology Group.

Contrary to speculation, today's announcement does not concern services, which are a strength of IBM's and which Dell is thought to need to beef up. Last May, Dell moved its services contract from Digital Equipment Corp. after Digital was purchased by Compaq. Dell then struck replacement services deals with Wang Global and Unisys Corp., but the direct PC vendor is currently without a single powerful services organization to support the machines it sells.

Analysts said that the cooperation between the two companies is a good fit, especially for Dell. Access to some of the fruit of IBM's research and development efforts will be a valuable asset for Dell as it attempts to jump into the enterprise market, according to John Dunkle, analyst with Workgroup Strategic Services in Portsmouth, New Hampshire.

"It opens up a new plethora of technical innovation" for Dell, Dunkle said. "Dell certainly could not (duplicate IBM's R&D), given the amount of investment that (IBM makes) in those core technologies."

Another analyst agreed that the deal could help Dell in its quest for more market share, especially relative to Compaq Computer Corp. In the past, Dell has used multiple sources to supply it with parts, but focusing on IBM will yield real benefits, according to Martin Goslar, director of Internet commerce and PC markets at Cahners In-Stat Group in Scottsdale, Arizona.

"With having more of a single-source, IBM supplier, they'll have a much easier way to obtain high quality, reliable, single-source components, chipsets and other supplies to take them down that road of dramatically higher volumes to satisfy the world market," Goslar said.

News of the announcement pushed up shares of the companies in late morning trading. IBM shares were up $9.06 from its close yesterday of $166.75; Dell's shares increased $2.44 from its close of $80.94.

Dell, in Round Rock, Texas, can be reached at +1-512-338-4400 or http://www.dell.com/. IBM, in Armonk, New York, can be reached at http://www.ibm.com/.

Desk edit by: Elizabeth Heichler

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