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Dell, IBM in $16B pact
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March 4, 1999: 4:05 p.m. ET
Computer giants unveil technology agreement called largest of its kind
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NEW YORK (CNNfn) - Computer giants IBM and Dell Computer Corp. announced a $16 billion technology pact Thursday said to be the largest deal of its kind in the information-technology sector.
The seven-year, non exclusive agreement calls for Dell (DELL) to purchase storage, microelectronics, networking and display technology from IBM (IBM) for integration into Dell computer systems.
In the future, the pact is expected to include IBM's copper, silicon-on-insulator and other advanced technologies.
The deal also calls for broad patent cross-licensing between the two companies and collaboration on the development of future product technology
Mike Lambert, senior vice president of Dell's Enterprise Systems Group, told a press conference in New York that the deal "is just really beginning."
The benefits of the agreement are expected to be seen in the long term.
IBM was up 4 9-/16 at 171-5/16 in afternoon trading, while Dell was up 1-1/16 at 82.
"A big invoice for IBM"
Analysts were generally impressed with the landmark deal.
"It's a big invoice for IBM," said Louis J. Mazzucchelli of Gerard Klauer Mattison. "IBM gets to sell lots and lots of components to Dell. This is terrific for IBM and it's good for Dell. I don't think it's going to be a material change to the way Dell does business."
Walter Winnitzki, an analyst with Hambrecht & Quist, said that for Dell, the deal puts IBM on the same level as Intel Corp. (INTC) and Microsoft Corp. (MSFT).
"This is more strategic in nature, as opposed to revenue-based," Winnitzki said. "There are a lot of areas you can't put your hands around."
Sam Albert, president of Sam Albert Associates, said the deal was "a boon for the customer."
Albert, speaking on CNNfn's "Trading Places", said the non-exclusive arrangement allows IBM to show "it's family jewels."
"I think (IBM Chairman Louis Gerstner) has decided that exclusivity doesn't work in an open world," Albert said. "So consequently, the patents and the technology leadership that IBM has displayed over…the last five years were always hidden away in the closet."
Albert added that Gerstner believes "that if we can make more money with those family jewels, than the family will be wealthier."
Meanwhile, Albert said, Dell "gets to leap-frog" over the competition.
"Dell has made this deal so they can get a leg up on the technology," Albert said, "and their machines will be the latest and greatest."
Noting the non-exclusive aspect of the deal, Albert discussed the concept of "co-opetition," a term he coined in 1991, where companies that may go head-to-head will cooperate with each other when it's good for business.
"This is a strategy whose time has come," he said.
IBM recently has lost market share in the PC business, due to lower computer prices and increased competition from direct marketers such as Dell.
Dell, on the other hand, has been trying to get into the servers and workstations market, but still lacks a powerful services organization to support these machines.
IBM's $30 billion service business, which provides everything from computer consulting to installation and maintenance, is one of the company's fastest-growing divisions. 
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