Computer networking upstart Xylan Corp. said Tuesday it had entered a broad alliance with IBM Corp. under which Big Blue will buy at least $30 million of Calabasas-based Xylan's products, produce others under license and receive an option to purchase 5% of the company.
Xylan's switches provide a relatively low-cost method of moving data, graphics and video across computer networks, and the 3-year-old company rode the Internet boom to become one of this year's hottest initial public offerings. But since hitting a high of $76 in late May, Xylan's shares have fallen along with many other tech issues.
The company's stock dropped $11 on Friday and Monday after a disappointing earnings report, but jumped $1.50 Tuesday on word of the IBM deal to close at $36.25.
IBM will now become Xylan's biggest customer. As many as 30 IBM engineers will be sent to Calabasas to work with Xylan's staff, and Xylan will send some employees to IBM's networking division in Raleigh, N.C. Xylan spokesman Douglas Hill characterized the $30 million in products as "just the initial order" from IBM.