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IBM, Shell in $100M deal
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July 6, 2001: 12:15 a.m. ET
Big Blue will supply hardware for energy company's IT infrastructure
By Staff Writer Richard Richtmyer
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NEW YORK (CNNfn) - IBM and Royal Dutch Shell Group have signed a five-year strategic alliance agreement under which IBM will be the sole provider of the computer equipment underpinning an ambitious information technology (IT) project.
Under the terms of their agreement, which the two companies have valued at roughly $100 million and are expected to officially announce on Friday, IBM will supply a range of computer hardware which Shell will use to standardize and consolidate its global IT applications infrastructure.
Shell said it will deploy IBM hardware -- including servers and storage systems, tape drives and libraries, storage area-network switches as well as data-storage management software from IBM subsidiary Tivoli Systems -- as part of its "MegaCentre project," which it described as one of the most important IT initiatives in the company's history.
The program is aimed at reducing Shell's total cost of ownership for its IT systems by replacing servers and storage systems scattered in numerous locations throughout the world with fewer, more powerful systems in three regional hubs, according to Mike McGarry, a Shell spokesman.
More partnerships to come
IBM is the first technology partner Shell has named in the project, which also is expected to involve a range of other companies such as telecommunications service providers and database software vendors.
"We're a company that operates in multiple countries with more than 90,000 employees, so there are a lot of different computer systems out there," McGarry said. "The MegaCentre approach will help to streamline that and obtain efficiencies and cost reductions."
Such consolidation also will provide a foundation for the next generation of e-business applications, McGarry said.
The three MegaCentre hubs will be located in: Kuala Lumpur, Malaysia; The Hague in The Netherlands; and Houston, Tex., in the United States. Initially, the MegaCentre will provide the infrastructure for its enterprise resource planning and e-business applications, Shell said.
Shell also has pre-negotiated options for IBM (IBM: Research, Estimates) financing, technical support services and maintenance of Shell's MegaCentre project, but at this point they have not signed any services or support contracts.
"If they need skills anywhere around the world, we have the best capability to respond to that," said Mike Borman, vice president of IBM's Server Group. "They may choose to finance their equipment, and we'll do that anywhere in the world for them."
"What we intend to do is prove how good we are on this project and then expand it to either other IBM components or into other projects at Shell," Borman added.
With operations in more than 135 countries, Royal Dutch Shell Group is the world's No. 2 supplier of oil and gas. The group, a joint venture of Royal Dutch Petroleum and Shell Transport and Trading, generates the bulk of its revenue from its integrated oil business but also makes chemicals, and develops renewable energy sources.
Shell's agreement with IBM for the MegaCentre project is the second major technology pact the two companies have entered recently.
Last December, the two companies unveiled a joint effort to build what they say is the world's largest supercomputer powered by the Linux operating system. The new system, which Shell is using to run seismic and other geophysical applications as part of its exploration initiatives, is made up of 1,024 IBM xSeries servers.
The companies did not disclose the specific financial terms of that deal, but the list price for IBM's xSeries servers at the time they entered it was $4,400 each, which would give it a price tag of roughly $4.5 million.
Shares of IBM fell 88 cents to $112.10 in light volume New York Stock Exchange trade Thursday. 
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