IBM, Compaq Talks Heat Up -- Copper Chips Key To Potential Partnership
Jul. 02, 1999 (Computer Reseller News - CMP via COMTEX) -- New York - IBM Corp. and Compaq
Computer Corp. are negotiating a multibillion-dollar outsourcing pact that would have, among other things,
IBM making copper processors for Compaq.
The talks began before sweeping management changes at Compaq, Houston, but have continued to touch
on-without a final agreement-an alliance between the two powerhouses, according to executives at both
companies.
"We've had lots of discussions with them, and are having lots of discussions with them," said David
Ernsberger, group vice president of worldwide marketing for IBM's Technology Group.
"Once Compaq gets a [chief executive], I would expect something that would be pretty large," said one
source familiar with the deal.
However, Compaq's current management is not exactly sitting idly by. Its Office of Chief Executive, led by
Chairman Benjamin Rosen, said in an internal corporate memo last week that the company would pump an
extra $100 million into marketing and partnerships for its Unix-based Alpha solutions.
Among other things, the memo said, "We will develop enhanced relationships with key independent
software vendors to expand the market for our combined product offerings." The memo mentioned no
partners by name.
In recent months, IBM's Technology Group has forged alliances with Dell Computer Corp., Round Rock,
Texas; EMC Corp., Franklin, Mass.; and The Acer Group, Taipei, Taiwan. All have been multibillion-dollar
deals.
Compaq executives recently decided to convert the company's RISC-based Alpha microprocessors to
copper technology, perhaps as early as this year, said Jim Parsons, an Alpha marketing manager for
Compaq.
Armonk, N.Y.-based IBM is the only company that is making copper chips, according to industry experts.
"We have had discussions with them in the Alpha chip area," Ernsberger said. "They see our know-how and
capabilities, and they are impressed with it. . . . But nothing is finalized yet."
Ernsberger said IBM has been aggressively pursuing alliances with "leadership companies" and
acknowledged Compaq's interest in some of IBM's technologies.
Ernsberger and Peter Blackmore, Compaq's senior vice president of marketing, said Compaq already is
buying significant volumes of components from IBM.
"We buy huge amounts of material from IBM," Blackmore said.
Ernsberger said IBM currently supplies not just hard drives to Compaq, but memory, storage, some networking products, software and
displays.
Still, the Alpha processor is one of the cornerstones of Compaq's $10 billion in annual sales into the high-end enterprise, said
executives and according to the company's most recent financial report.
Intel Corp., Santa Clara, Calif., and Samsung Electronics, San Jose, Calif., currently manufacture Alpha processors for Compaq but
both have said they will not have copper chips at a size of 0.18 microns.
"Look at Compaq's road map," said Ashok Kumar, an analyst with U.S. Bancorp Piper Jafrey, New York. "They say they will have a
1GHz product by the end of the year. The only way they can achieve that on 0.18 [microns] is by copper interconnect.
"I think IBM is the only game in town which is using production copper for 0.18," Kumar said. A full-blown deal between the two
could reach into the multibillion-dollar arena if patterned after the Dell agreement, he said.
Ernsberger said that although companies such as Dell, Acer and EMC already buy IBM components in much the same way that
Compaq does, the public emphasis on IBM's brand will add mind share of "leadership, innovation [and] reliability" in alliances.
Compaq also recently signed on to Project Monterey, spearheaded by IBM, to design a common architecture for the fragmented
Unix operating system platform. "I think they have an active interest in this alliance thought process," Ernsberger said.
Jim Willis, another Alpha marketing manager, said discussions over a copper-fab deal "are progressing well. How soon we'll be going
public [with a deal], I don't know."
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