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IBM has combined its underperforming chip business with the more successful systems group that accounts for server and storage systems in the hopes of creating tighter links between the businesses.

The new unit will be dubbed the Systems and Technology Group. Chip business head John Kelly will run the division with system group chief Bill Zeitler. IBM plans to combine the financial performance numbers from the two divisions into a single figure. IBM, however, is saying that it will break-out revenue for the chip division to help provide some perspective on its performance.

Overall, the move is a bet baffling. IBM's server and storage groups already work hand-in-hand with the chip folks. Perhaps the best example of this collaboration comes with the Power4 processor. The chip sits at the heart of IBM's Unix server line, some storage systems and even third-party deals with companies such as Apple using a modified version of the product in its G5 computers.

IBM has been looking to attract more and more contract work for its chip division and has had some success. As previously mentioned, Apple has signed on with Big Blue and so have Nintendo and Nvidia. IBM also licenses technology to Sony, AMD and others. Still, the business has proved tough with the company reporting a string of quarterly losses.

The server and storage groups tends to operate at the break-even point in flat quarters and just a few points above that in solid quarters. The hardware sales, however, pave the way for more lucrative software and services deals.

One analyst reckons joining the two businesses could help with overall efficiency.

"There's always tighter integration within an organization that shares the same profit goals and strategic objectives than across organizations," said Gordon Haff at Illuminata. ®

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