By Jo Maitland
It’s long been suspected that because it couldn’t do it well IBM Corp would leave networking hardware to those who do it best, and yesterday the company finally threw in the towel by announcing that it is to sell its hub, switch and router patents and intellectual property to Cisco Systems Inc. As part of the agreement, Cisco will spend $2bn over the next five years on IBM network chips and a third leg of the deal will see IBM Global Services become a key Cisco Services supplier, maintaining computer networks for customers of Cisco.
Kevin Reardon, director of strategy for IBM’s Technology Group, said the $2bn pact represented the value of the components alone. Additional services contracts for the IBM Global Services unit would represent further revenue, he said. Terms of the intellectual property exchange were not disclosed.
Mike Daniels, general manager for IBM Global Services said: Cisco is acquiring several hundred patents for IBM’s switches and routers and will migrate the customers of these products over to Cisco equipment. He added, IBM will continue to support its SNA mainframe and Token Ring business but will phase out the development of its switches and routers. Over the next 12 months, Cisco will migrate IBM’s IP and Ethernet customers over to Cisco boxes which will spell the end of IBM’s networking hardware OEM deals with Xylan and 3Com.
Yesterday’s announcement with Cisco came as no surprise to analysts. IBM gave up any aspirations it had of becoming a branded supplier of networking equipment back in May, when it announced instead to become an arms supplier to all sides at a meeting of networking analysts at the company’s Net’99 Conference in Cannes. IBM admitted during that time that it does not have the capabilities to go and rig out a full Deutsche Telekom network and so decided not to take on the leaders, Lucent Technologies, Cisco Systems and Nortel Networks.
As part of the services deal, Cisco will also join IBM’s SNA to IP migration program and jointly develop new products in this area. Voice, data and video integration and e-business products are also on the cards for joint development. Selby Wellman, senior VP for Cisco’s Interworks division said: The service provider market space is attempting to move its customers over from the classic circuit-based systems to new IP technology and this is where IBM’s design, consulting and implementation experience plays such an important role. On the acquisition of IBM chipsets, Wellman said: We already embed a number of IBM’s chips into our products and plan to integrate them into all our future products as we go forward.
It looks as though Cisco is firmly tied into purchasing IBM chips for the next few years which analysts agree might limit them, especially when Intel is making a big push in the network processor market. Wellman said that three executives from each firm would be meeting once a month to discuss exactly those issues as and when they come up. The deal is subject to the approval of the Department of Justice which might query Cisco’s dominant position in the switching and routing market and how the acquisition of IBM’s business in this space will boost this position. Cisco argued that the technology it is acquiring from IBM is for next generation networks and does not reflect today’s market shares.
IBM employs 1,500 staff at Research Triangle Park in North Carolina and another 900 worldwide that all work within the networking hardware division. Two hundred work solely on the 3735 and 3746 SNA mainframe controllers and the Token Ring business, which IBM is maintaining, but the remaining 2,200 might have cause for concern. IBM refused to say what its plans where for these employees, saying only that it might have to work out a program that would distribute the hardware division throughout the rest of the company. Michelle Mayer, general manager for NHD said: Networking skills are in very high demand today.
