Big Blue backs out of networking via Cisco deal

Agreement worth billions of dollars to both companies

IBM has announced a five-year deal with Cisco Systems that will let Big Blue bow out of the routing and switching marketplace. IBM will supply networking vendor Cisco with network technology, components and services in the deal which was yesterday valued at an estimated $2 billion. Cisco will buy IBM's network equipment business, which will let IBM phase out some of its older switch and router product lines. IBM will keep the network equipment which is used to link mainframe computers. IBM thinks that there is more profit to be made from supplying parts and services to old rivals such as Cisco than trying to compete by investing in its own networking kit business, it was stated. IBM said this was just the beginning – and it expected to sign more deals in the communications sector. Selby Wellman, senior VP of Cisco Interworks Business Division, said the supply deal would add whopping sales amounting to billions of extra dollars for both companies. The specifics involve Cisco buying around 200 patents for network equipment such as routers and switches from IBM's Networking Hardware Division. The move will increase sales of IBM custom computer chips used in Cisco networking kit. Sources estimated that the deal would also pull in $3 billion of revenue for IBM in extra service charges. IBM added that it would support all of its Cisco network installations. ®

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