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IBM, Dell in $16 billion technology pact

The two companies announce a $16 billion agreement that calls for massive purchases of IBM products by Dell.

IBM and Dell have announced a $16 billion agreement which calls for massive purchases of Big Blue's products by the PC maker.

Dell will purchase "storage, microelectronics, networking, and display technology from IBM for integration into Dell computer systems," according to the announcement. Down the road, the agreement is also slated to include IBM's cutting-edge chip technologies, including copper and silicon-on-insulator.

The seven-year agreement, viewed as the largest computer supply deal of its kind, also stipulates "broad patent cross-licensing between the two companies and collaboration on development of product technology," the companies said.

But the deal seems to evidence IBM's de-emphasis of PC sales as an area of growth. (See related story)

Initially, Dell will have access to IBM's high-capacity disk drives, storage subsystems, network circuit boards, LCD screens, high-performance memory known as SRAM, and custom chips.

"By more extensively pairing IBM's world-class technology with our...efficient direct business model, we intend to enhance Dell's competitiveness in the global computer systems industry," Mike Lambert, senior vice president, Dell Enterprise Systems Group, said in a statement.

"We entered into the OEM [original equipment manufacturer] business in 1993 and it has been growing 40 percent compounded. It generated $6.6 billion in revenue in 1998," said Dr. James T. Vanderslice, senior vice president and group executive at the IBM Technology Group.

IBM oversees a vast reservoir of cutting-edge hardware products and has already been a standout OEM supplier. Today, this includes hard drives, memory chips, and liquid crystal displays (LCDs.

For example, IBM is the leading supplier of compact hard drives to notebook PC manufacturers and has already been supplying active-matrix LCDs to outside companies for many years. Dell has been using IBM hard drives in its notebooks for a number of years, as have Gateway, Compaq Computer, and other major notebook PC manufacturers.

Initially, Dell will purchase more IBM hard drives, memory, and possibly LCD screens, Lambert said. He added that Dell has 30,000 products on its new Web site and that many already are made by IBM.

"We're saying $16 billion, but actually this can become a better partnership than the numbers suggest," Lambert said.