August 31, 1999 11:05 AM PDT

Cisco, IBM ink $2 billion gear pact

Cisco and IBM announced a $2 billion dollar agreement today that calls for the supply of components and intellectual property from Big Blue, as it delivers much of its core communications technology to Cisco.

In addition to the acquisition of IBM patents by Cisco, the computer giant also said it will move its networking equipment customers to Cisco, indicating that it is retreating from this aspect of the business.

But it continues to rev up its component supply business. This push, like major strategic initiatives from Big Blue over the last 12 months, is coming from IBM's Technology Group, which sells disk drives, displays, and a variety of chips to customers like Dell Computer, Compaq Computer, Acer, and EMC.

IBM and C-Port, a privately held networking company, are also expected to announce a technology agreement.

IBM and Cisco said they plan to deliver a combination of networking solutions, technologies, and services to businesses worldwide.

The $2 billion covers the supply of components, including chips and switches, to Cisco, according to Kevin Reardon, director of strategy at IBM's technology group. The services agreement is separate, he said. Communications chips form the central nervous system of equipment like routers and switches. Routers act as traffic cops, sending data only where it is authorized to go.

"We're now setting our sites on the communications industry," he said. This focus on communications components is analogous to deals IBM struck with Dell and Acer for the supply of hard disk drives and liquid crystal display technology, Reardon added.

As part of the agreement IBM will move its router and switching customers to Cisco equipment, according to Reardon. "They will migrate from IBM to Cisco," he said.

The impetus for the Cisco agreement was the size of the market and the investment that would be required in order to compete. "We were in the data and network area but voice would require a tremendous investment. So we decided to partner."

The agreement includes:
 A strategic alliance between IBM Global Services and Cisco. The two companies will offer a range of services and joint solutions for e-business and networking. Cisco customers worldwide will also have greater access to IBM Global Services to support their Cisco products.

 Cisco will purchase routing and switching intellectual property from IBM's Networking Hardware Division. There will also be joint development of products and services. IBM said it will provide ongoing support of its routing and switching products for existing customers, and will continue to offer and support its Systems Network Architecture, Token Ring solutions, and Ethernet products through its sales and distribution channels.

 An agreement by Cisco to purchase IBM technology over the next five years: this will combine IBM's strengths in servers, software, services, and technology for e-business with Cisco expertise in networking technology.

"This alliance demonstrates a significant opportunity for customers to utilize Cisco's portfolio of end-to-end network solutions, and IBM's technology and the reach of its worldwide services to seamlessly move business to the Internet," Selby Wellman, senior vice president, Interworks Business Division at Cisco Systems, said in a statement.

IBM said that customers will now be able to use IBM Global Services "for all of their Cisco support needs--from network consulting and design, to procurement, implementation, and maintenance." This includes data, voice, and video services, and corporate "enterprise" management.

IBM Global Services will also participate in Cisco's Global Support Partner Programs. The two will collaborate in areas such as business policy management to provide technology that speeds the deployment of e-business.

To move IBM customers to Cisco Internet solutions, the two companies will also establish project offices to identify and handle joint customer opportunities, and establish interoperability labs to test solutions.

Portions of this alliance are subject to governmental reviews, the companies said.

Meanwhile, IBM and C-Port plan to develop standard APIs to enable independent vendors to write software that runs on communications processors from both companies. C-Port has also selected IBM to build its C-5 Digital Communications Processor and intends to work with IBM as its key technology provider to enhance future generations of the processor.

 

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