John,
Did you hear KUMARS report?
Dell, IBM announce $16B alliance
IBM will have access to Dell's build-to-order process.
By Anne Knowles, PC Week
March 4, 1999 10:22 AM PT
IBM Corp. will gain access to the brains behind Dell Computer Corp.'s much coveted build-to-order process as a result of the $16 billion deal the two companies announced early Thursday.
The agreement includes abroad patent cross-licensing contract between the computer makers. IBM (NYSE:IBM), which officials say has been granted more patents than any other company for the last six years, has plenty of technology to offer Dell (Nasdaq:DELL).
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But that left observers wondering what Dell, which spent just 2 percent of sales on research and development in 1998, had to offer in return.
"We have [intellectual property] around our build-to-order process," said Peter Scacco, a spokesman for Dell in Round Rock, Texas.
For years, Dell's build-to-order and distribution process has been the envy of the industry, and other PC OEMs, including IBM, have been unable to emulate it despite their best efforts.
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Under the terms of the seven-year deal, the two companies will work to develop customized products for Dell. According to Scacco, that will include fine tuning products to optimize them for assembly on Dell's manufacturing line.
Dell's buy list
As part of the deal, Dell will buy IBM storage products, semiconductors, networking equipment and display technology. Included in the storage products will be high-capacity disk drives for servers and possibly IBM's Microdrive, a tiny 340MB drive due by midyear and destined for digital cameras, handheld computers and other devices.
Semiconductor technology will include SRAM (static random access memory), custom chips and future IBM chips using copper and silicon-on-insulator technology, which will be used in a broad range of chip products.
Dell and IBM officials stressed that the deal does not include microprocessors. Currently, Dell uses only Intel Corp. processors.
"I don't see how this will have an impact [on Intel]," said Jim Vanderslice, senior vice president and group executive with the IBM Technology Group in Somers, N.Y., during the announcement. "There is little, if any, conflict."
Both sides emphasized that today's deal may be a harbinger of a much larger agreement that could encompass, among other things, IBM services.
Just a start
"This is just the beginning," said Mike Lambert, senior vide president for Dell's Enterprise Systems Group. "This may be a better partnership than those numbers suggest."
"This is an ambitious undertaking," said Vanderslice. "I've made a lot of sales calls in my life, but few where we've closed $16 billion."
IBM's OEM business has had 40 percent annual compounded growth in its six years, from $200 million in 1993 to $6.6 billion last year.
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