FOCUS- DELL/IBM deal.Analysts comments.'A Virtual merger' says Takata.
There is some anxiety about tomorrow's employment report but they say it is pretty much priced into the bond already,we shall see.I think the employment report should be rather strong as expected if not that will be a surprise.
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Thursday March 4, 2:04 pm Eastern Time
FOCUS-IBM enters $16 billion pact to supply Dell
(adds analyst comment, new stock quote, details, byline)
By Andrew Hay
NEW YORK, March 4 (Reuters) - International Business Machines Corp. (NYSE:IBM - news) on Thursday said it entered a $16 billion pact to provide Dell Computer Corp. (Nasdaq:DELL - news) with key building blocks for its personal computers, in the largest supply deal the industry has ever seen.
Under the seven-year agreement, IBM will supply Dell with a range of key computer components for its machines, including disk drives, chips, network attachments and monitors.
At a New York media conference, officials of the two companies said the $16 billion pact was only the ''beginning'' of a close partnership and could lead to further supply arrangements.
The deal between IBM, the world's largest computer maker, with Dell, the fastest-growing company in the business, is vibrant illustration of a widespread practice in the high-technology sector, in which rivals compete in broad areas while cooperating in selected businesses.
Investors welcomed the news of the arrangement. IBM stock was up $7.50 at $176.25 in composite U.S. stock exchange trading Thursday, while shares of Dell were $2.42 higher at $83.38 on the Nasdaq stock market.
''Our expectation is that this is just really the beginning,'' Michael Lambert, head of Dell's corporate systems group, said .
''We could expand on this,'' he said. ''It could be an even bigger partnership.''
The pact will give a big lift to IBM's component-supply business, which has grown 44 percent a year since it formed in 1993, and generated $6.6 billion in revenues last year, IBM officials said.
''For Dell, I think they gained technology they deeply needed,'' said David Takata, a securities analyst with brokerage Gruntal & Co.
''It reinforces IBM's role as a leader in the market'' supplying computer components, he said.
IBM's strategy involves providing outside companies, many of them competitors, with many of the same technologies IBM's own businesses incorporate in their own products.
''No one company can do it alone,'' said James Vanderslice, a top IBM executive who oversees the company's technology component supply business.
The agreement calls for broad patent cross-licensing between the two companies and joint work on new technology. It is expected to lead to the future use of IBM advanced computer chip technology by Round Rock, Texas-based Dell. This would allow Dell engineers to make use of IBM technology in future computer products they design.
Initially, Dell plans to expand its use of IBM components such as computer disk drives and flat panel displays in its PC lines. Dell, the leading direct supplier of personal computers, also plans to incorporate into its machines IBM network adapter cards, used to hook PCs to corporate networks.
It marks the first time Dell has used such IBM products. Dell now relies on network adapters from 3Com Corp. (Nasdaq:COMS - news), Intel Corp. (Nasdaq:INTC - news) and Cisco Systems Inc. (Nasdaq:CSCO - news)
IBM and Dell officials stressed that their supply agreement was non-exclusive and did not cover any arrangement tied to Dell's use of IBM's computer services arm, as reports ahead of announcement speculated.
''I think the world has learned a lot from the Internet in terms of how alliances work,'' Takata said. ''You can really leverage off other companies' strengths,'' referring to how Dell will gain access to IBM's vault of advanced technology.
''In Internet terms, it's a virtual merger,'' he said.
The deal has no direct bearing on IBM's own personal computer business, which will still compete against Dell. IBM ranked No. 2 in worldwide shipments in 1998, followed closely by Dell, in the No. 3 spot. Compaq Computer Corp. (NYSE:CPQ - news) is the world's largest personal computer maker.
Officials also said Dell was not replacing existing suppliers, but instead would use supplies from IBM to produce equipment for expected future growth.
In recent years, Armonk, N.Y.-based IBM has expanded beyond its traditional computer hardware business into fastest-growing areas like computer services, software and the sale of its technology to other computer makers for use in their products.
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