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IBM Agrees to Buy Custom Computer Chips From Intel

October 07, 1986|From Reuters

NEW YORK — International Business Machines said Monday that it has agreed to buy specially designed computer chips from Intel Corp., a move that analysts said would frustrate makers of the so-called clones that have been cutting into IBM's personal computer sales.

Analysts said the agreement with Santa Clara, Calif.-based Intel, which will swap technology with IBM, allows IBM to make further technological advances as well as providing for the development of the proprietary, customized chips.

These chips, which are made in small numbers, make the designs of personal computers more difficult to copy without violating patent and copyright laws. IBM has been losing millions in dollars in revenue due to competitors who have been copying the company's designs.

"IBM has a certain amount of research it does internally, and now it is extending it," said Jay Stevens of Dean Witter in New York. "Eventually, it will help (stop) cloning. If they introduce a proprietary version, a clone will have to figure out how to copy it, and that will take some time. The way to throw off clones is to put time in their way."

IBM has been using off-the-shelf chips in its personal computers, thus making it possible for other manufacturers to copy the company's design by buying identical parts.

A spokesman for IBM said the company does not comment on its future strategy and would not say whether the agreement with Intel was an effort to make cloning more difficult.

Intel--which makes microprocessors for IBM's personal computers as well as for other computer companies that make IBM-compatible computers known as clones, said the deal involves a technology swap.

Analysts pointed out that the swap type of agreement was not unusual. Technology swap pacts have been signed between Xerox and National Semiconductor, Sony and Advanced Micro Devices, and Northern Telecom and Motorola.

In return for producing the chips for IBM, Intel will have access to the complete designs for many of IBM's own chips. Intel can then build its own features into those chips, designing customized chips called application specific integrated circuits (ASIC) that can be used in computer accessories compatible with IBM machines.

Analysts said the move into customized chips will be profitable for Intel, which is known for producing large amounts of general-purpose chips developed over a long period. Although there is a smaller market for customized chips, analysts said they are more profitable.

Michael Geran of E. F. Hutton in New York said: "It's a marriage made in heaven. Both companies gain."

Expected to Grow

An Intel spokesman said the agreement will enable the company to become an "active player in the ASIC market." She said the ASIC market is expected to grow to $9.4 billion by 1990 from $1.8 billion last year.

Analysts said the agreement also bodes well for Intel's future because it indicates that IBM plans to stay with Intel's microprocessors, thus helping to ensure Intel's place as an industry leader.

Intel recently made news with the introduction of a new microprocessor, known as the 80386, which is expected to launch a new generation of personal computers.

The microprocessors enable desktop computers to handle tasks now handled by huge and costly mainframes or minicomputers and to run four times as fast as existing models.

Analysts speculated that IBM is likely to bring a new generation of PCs that will use a customized version of Intel's 80386 advanced chip. IBM is expected to introduce its personal computer based on the new microprocessor next spring.

IBM's technology-sharing pact with Intel is an extension of a close relationship between the companies that goes back to 1981, when IBM introduced its best-selling Personal Computer using Intel's microprocessors.

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