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Acer, IBM sign $8 billion pact

IBM and Taiwan's Acer announce an $8 billion deal, calling for Acer to purchase a variety of key components from Big Blue, an extension of a longstanding relationship.

IBM and Taiwan's Acer today announced an $8 billion deal, calling for Acer to purchase a variety of key components from Big Blue, an extension of a longstanding relationship.

Under the agreement, Acer will purchase hard drives, chips, networking hardware, and display technology from IBM for integration into Acer's line of personal computers and servers. The value of these purchases is expected to reach $8 billion over the course of the agreement, according to IBM.

Acer will also sell IBM technology including hard disk drives through its distribution channels, the two companies said. Acer, on an OEM basis, already supplies Aptiva consumer PCs to IBM as well as its "i Series" of ThinkPad notebooks.

IBM is on a deal-cutting tear. It has recently signed multibillion dollar deals with Dell Computer and EMC. In the $16 billion deal with Dell, IBM is supplying key components and a $3 billion agreement with EMC calls for IBM to supply hard drives and chips.

"We're getting into a groove [with these new deals]," said Dr. James T. Vanderslice, senior vice president and group executive at the IBM Technology Group. "We can eat our own cooking too," he added, stating that IBM can use new technology it supplies to others in its own internal products. Vanderslice said that about one-third of the deal has already been in place because of their past relationship with Acer and today's announcement comprises the other two-thirds.

Acer and IBM both excel at manufacturing different kinds of components and can therefore complement each others' strengths with this deal.

"This new technology alliance with IBM will allow us to combine the resources and advantages of both companies," said Acer Group CEO, Stan Shih. Today's pact differs from the multibillion dollar agreement with Dell where it gets access to IBM technologies and components to boost the competitiveness of its PCs and servers and IBM secures a revenue source.

Importantly, this deal may help bolster Acer's worldwide business. The Acer brand has not fared well in the U.S. market and the company has reported losses in its U.S. operations as its profile here has sunk in the last few years.

One of the most intriguing aspects of today's agreement is that the two companies are also eyeing joint manufacturing and development of chips for future Internet appliances, focusing on the Asian market. The computer-system-on-a-chip technologies will be based on IBM's PowerPC architecture.

"The two companies...plan to explore opportunities for manufacturing collaboration, the exchange of complementary technology and joint development which could result in near term business impact," they said.

Also, this pact extends a deal whereby IBM supplies liquid crystal display (LCD) technology to Acer based on manufacturing processes and technology Acer licensed from IBM last year. This arrangement could result in IBM purchasing as much as $1 billion in displays from Acer. IBM itself is one of the world's largest producers of LCDs and runs a massive manufacturing facility with Toshiba in Japan called DTI.

Vanderslice said that "LCD supply is constrained. We're working with Acer to build capacity. It's an exploding industry," he said. Acer will begin supplying 13.3-inch LCD screens to IBM starting next month, Acer's Shih said.

Acer and IBM development are also planning e-commerce solutions for Acer's core IT infrastructure and those of its key suppliers.

The key to IBM's strategy is its giant microelectronics business. The division, known for its state-of-the-art chip fabrication facilities and processor technology breakthroughs, could pan out as one of the company's most successful operations, cranking out everything from chips in cell phones to satellites.

"[This is] the first major change since its entry into the merchant market six years ago," said Boris Petrov, principal of the Petrov Group. "IBM's ability to evolve its strategy with predictable regularity is remarkable for such a large company and creates a perpetual competitive treadmill."

It's good for Acer too. "It's very smart for Acer to team up with IBM and Taiwan Semiconductor," said SBC Warburg Dillon Read Securities electronics analyst Tony Tseng, speaking to Reuters.

"Since orders from IBM account for around 50 percent of Acer's annual revenues, the [IBM] deal guarantees Acer will remain a powerful player in the PC industry. Bringing Taiwan Semicon into its memory chip unit virtually erases one of the major uncertainties surrounding Acer," he said to Reuters.

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