IBM's Cisco Gambit

In describing the recently cemented partnership between IBM and Cisco Systems Inc. (San Jose, Calif.), a chess commentator might be tempted to note that Big Blue sacrificed its queen, the company's not-insubstantial investments in networking hardware technology, to ultimately win the match-a sales and services alliance with Cisco that amounts to $2 billion.

In late August, IBM and Cisco took the wraps off a new global alliance punctuated by both a $2 billion technology agreement and a strategic relationship between Cisco and IBM's Global Services division. Significantly, Cisco also agreed to acquire portions of IBM's networking intellectual property.

Dr. James Vanderslice, senior VP and group executive for IBM's technology group, says that the IBM/Cisco alliance was prompted more than anything else by the increasing dependency of customers on e-business systems. "As customers move from traditional business models to become e-businesses, they need assistance and leadership from their technology providers," Vanderslice explains, noting that the alliance combines IBM's proven software, hardware and services assets with Cisco's renowned networking expertise.

According to the terms of the alliance, IBM and Cisco will collaborate to jointly develop products and solutions. Possible development initiatives include voice and data consolidation and integration, e-commerce-related solutions and-a boon for AS/400 administrators-SNA/IP integration. Both companies also plan to offer a "full" spectrum of enterprise services, and in this regard, says Rob Enderle, a senior analyst with consultancy Giga Information Group (Cambridge, Mass.), Big Blue's Global Services division emerges as a big winner.

"IBM's doing a lot of things to try and build upon what is a hugely successful business for them, their services, because that's one part of the company that's doing phenomenally well in terms of growth," Enderle explains.

IBM Global Services plans to offer consulting, design and implementation support for Cisco's networking systems and is expected to participate in several Cisco partner programs.

The IBM/Cisco combine comes at the expense of IBM's networking hardware business however. Accordingly, IBM announced that it will divest itself of its interests in the network hardware field, and indicated that it will also sell 200 patents for routers and switches to Cisco for an undisclosed sum. In return, Cisco will purchase approximately $2 billion in semiconductor, chipset, and storage resources from IBM over the next five years.

Big Blue acknowledged that it plans to honor all existing contracts on networking products, and also promised to help existing customers migrate to Cisco-based networking systems in cooperation with Cisco.

In the final analysis, says Enderle, IBM simply re-evaluated its priorities in the e-business age and determined to make a winning move by partnering with a networking industry giant such as Cisco.

"Going forward, competing in the networking equipment business is just not something that they appear willing to do, so they were able to trade up to an ideal situation with a market leader in Cisco," Enderle comments. "On the whole, IBM seems to be doing whatever it takes to align itself with industry leaders, and Cisco is certainly one of the most dynamic players in the networking space."

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