March 8, 1999 Web posted at: 5:07 p.m. EST (2207 GMT) by Marc Songini and Deni Connor

From...

ARMONK, N.Y. (IDG) -- IBM and Dell got into the same corner of the ring this week, but it looks like they'll just be delivering a jab, not a knockout blow, to rival Compaq.

Dell agreed to put $16 billion worth of IBM components into its products over the next seven years. Besides the money, IBM gets a bit of prestige, and a greater role in defining PC and server standards.

Dell cut the deal with IBM's recently formed Technology Group, which includes the Networking Hardware Division (NHD), and IBM's storage and microelectronics divisions. IBM's OEM business has been growing 40% a year for the past six years.

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Dell expects to buy IBM Token Ring network interface cards, high-capacity disk drives, flat panel displays, static random-access memory and custom-made chips. Sources say IBM may also supply Dell with other types of network gear, its state-of-the-art high-capacity copper and silicon-on-insulator chips, and perhaps other intellectual properties. The two companies could also build products together, officials say.

The IBM/Dell duo is far from a death sentence for Compaq, the leader of the PC and server markets. "This is not going to stop Compaq," says Frank Dzubeck, president of Communications Network Architects, a Washington, D.C. consultancy. What it does mean is that technologically conservative Dell will now have a chance to exploit IBM's rich portfolio of intellectual property, he says. "Expect to see Dell's equipment as current as anyone's," Dzubeck says.

Dell is looking forward to IBM's helping hand. "No one company can do it all by itself," says Mike Lambert, senior vice president of Dell's Enterprise Systems Group.

Compaq officials say they are not getting sweaty palms over the venture.

Dell is merely assembling the components other vendors make without much differentiation, says a Compaq spokesman, who adds that Compaq is the largest purchaser of IBM disk drives. "We do not see this deal as any threat to our position in the market," the spokesman says.

A match made in Armonk

The deal allows Dell to buy components from other OEM vendors, such as Intel, which provides the CPUs for Dell PCs. The compact only covers IBM's Technology Group: the PC and server groups will be competing just as fiercely as ever with Dell.

The deal is good news to one user at least. "We're ecstatic about the deal," says Ash Shehata, chief information office of Antelope Valley Health Care Systems, an acute-care facility in Lancaster, Calif.

His 2,000-seat network contains 65 Window NT PC servers. "We would love Dell to come up with the leading technologies, but it is intelligent enough to realize it needs to make best of breed, mix and match products," he says. He likes IBM products - as long as they stay under the Dell hood. "As long as the [Dell] products are vanilla and off the shelf and the best, we'll buy from Dell," Shehata says.

Marc Songini is a senior writer for Network World. Deni Connor is a senior editor for Network World.