IBM is set to announce Monday that it has licensed a digital signal processor core from rival chipmaker LSI Logic, in a deal that
highlights both the changing face of competition and a newfound creativity
inside Big Blue.
Under the pact, IBM plans to use LSI's ZSP core as part of the
custom chips it sells to big networking and wireless companies. The core
should start showing up in wireless base stations and other equipment
beginning early next year.
DSPs (digital signal processors) refine digital audio and video data and are key elements in cell phones and a host of digital gear from
networking products to digital cameras and MP3 players.
In making the deal, the two companies show a willingness to work
with a competitor to get something they want. IBM gets what it
believes is a key technology for future networking gear, while Milpitas,
Calif.-based LSI picks up a key customer for a chip architecture it hopes
to make standard.
Still, even the parties involved admit it makes for strange bedfellows when
fierce rivals strike a deal.
"Stranger things have happened, but certainly on the surface, it looks
strange," said Duncan Needler, marketing manager of IBM's custom logic
What makes the deal attractive is both companies are trying to forge an
alternative to the chip architecture of Texas Instruments, the industry
leader in DSPs.
The deal also highlights IBM's unusual strategy to boost its chipmaking
operation. While other big names, such as Lucent Technologies and Broadcom,
have focused on buying start-ups, Armonk, N.Y.-based IBM has looked to a
variety of alliances, minority investments and technology-swapping deals to
boost its chipmaking operations.
"We've really found it's a way to accelerate our products into market," said
IBM Vice President Chris King. "It certainly is a different path than
In the past year, IBM has structured a number of these deals.
In many cases, the start-ups want access to IBM's chipmaking facilities and
advanced-manufacturing techniques, such as copper wiring and
Networking chipmaker Multilink
Technology was attracted by IBM's silicon germanium manufacturing
process, which is ideal for the super-fast chips the company designs. Although
IBM had the technology, King said the company lacked the product knowledge Multilink
had. Now the two companies have a joint design center developing products
that both companies are able to market.
In the case of network processor maker EZchip Technologies, IBM made a financial commitment last November, giving the start-up access to IBM's embedded memory technology in exchange for access to some of EZchip's intellectual property.
Though many deals focus on IBM acting as a manufacturer, the tables were
turned when the company struck a deal the same month with Kymata, a Scottish maker of optical
networking chips. In that case, IBM had a unique silicon-oxy-nitride
manufacturing process but needed access to Kymata's manufacturing capacity.
IBM also took an equity stake in Kymata.
"Every deal is a little different," King said.
Analyst Richard Doherty, of Seaford, N.Y-based Envisioneering Group, said
the cumulative effect of the deals has been to give IBM an impressive
platter of technology.
The portfolio of "IBM is a Chinese menu," he said. "You can get just about
anything you want."
Doherty said adding LSI's DSP core helps fill one of the few areas within
IBM that wasn't particularly strong.
The deals not only give IBM needed technology, but start-ups have a
perspective that big companies don't, King said.
"Talking to the start-ups is really where you get the headlights into where
the industry is going," King said.
Doherty said managing such relationships is tough, but from what he hears,
most companies walk out of meetings with IBM primarily concerned with how
fast they can start working together.
"No one's ever accused IBM of not knowing how to conduct business," he said.
IBM said its deal making is already paying off, noting that its chip
business was a key reason it was able to post better-than-expected fourth-quarter results.
Doherty said the company will continue to reap the fruit of such deals.
"Clearly, IBM keeps getting a larger and larger share of custom logic," he