Intel, Compaq form alliance

The two biggest drivers of the personal computer industry will join forces tomorrow to speed adoption of networking technology.

Intel (INTC) and Compaq Computer (CPQ) will unveil a comprehensive agreement that includes joint licensing, engineering, and product development that will result in products by the end of this year, according to sources.

The joint alliance could have far-reaching implications on the networking market, given Intel's recent drive to sell higher speed Ethernet-based networking gear to augment its core microprocessor expertise and Compaq's vast sales channels and distribution capabilities.

"I've been waiting for Intel to make some kind of partnership," said Mary Petrosky, analyst for the Burton Group consultancy. "There's two companies that'll be affected most by this: Hewlett-Packard is one and 3Com is another."

"The pricing pressure is going to be on," she said. "The only thing that's kind of odd for me is, won't they be competing with each other?"

The two companies will work to improve network interface cards (NICs) and server adapters, switches, hubs, digital subscriber line (DSL) technology, and remote access servers, sources said.

Technologies the two companies will address include gear for the emerging Gigabit Ethernet market as well as port densities for Fast Ethernet-based switches.

Gigabit Ethernet is the next generation of Ethernet, the dominant networking pipe that connects PCs and servers over a local network. An industry standard for Gigabit Ethernet design is expected to be finalized by the first half of next year.

Compaq essentially bought its way into the networking hardware market with a series of acquisitions starting in late 1995 and continuing with the purchase of Microcom for $280 million in April. Intel has added focus to the networking space in recent months, expanding its products to include Ethernet-based switches and low-end routers.

The Intel/Compaq deal is only the latest in a slew of joint marketing agreements in the computing industry. Some have resulted in tangible gains for customers, while others have been quickly relegated to the dust bin of high-tech history.

"Because of their long-term relationship I don't think this is something that is going to blow over overnight," Petrosky noted.