IBM has sold the intellectual property (IP) rights to some of its Ethernet products to Cisco as part of a $2 billion deal, following its decision to exit the network router and switch market.
Over the next 12 months, Big Blue said it will stop manufacturing its family of router and switches, but analysts were not surprised by the move, saying the vendor had struggled to compete with specialists such as Cisco and Lucent in the converging telecoms and networking space.
According to IDC, IBM's switch revenues were "minor", but shares third slot in the router market with 3Com, pulling in between $200 million and $300 million worth of sales per year.
Paul Strauss, an analyst at IDC, said: "This is a tremendous loss of face for IBM considering how much it backed the networking market 15 years ago. It wasn't losing money, but it would have had to invest more money to compete with specialists in this area."
In return for the IP rights, Cisco will buy microprocessors from IBM for five years and provide Big Blue's customers with its networking products to help them migrate. It is unclear, however, whether Cisco will take over the manufacture of equipment that IBM plans to axe.
Big Blue said it would continue to develop and sell its SNA mainframe connectivity, Token Ring products, and its Ethernet adapters, which analysts believe it wants to sell.
But this suggestion was dismissed by Kevin Reardon, director of strategy at IBM's technology group, who said Big Blue thought it was important to enable its servers to attach to Ethernet networks.
He added: "The choice was either to partner [with another supplier in the convergence market] or to realign investments in technologies. We chose to partner with Cisco for an end to end solution."
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