Updated from 11:50 a.m. EDT
International Business Machines
announced Thursday that they would begin selling each other's products and would make their storage hardware and software interoperable.
The two companies, the world's largest suppliers of computing systems and information technology, plan to invest more than $1 billion under the new deal and to share some of their research to create new industry-wide standards for storage networks.
"Vendors who continue to promote proprietary systems and standards will find themselves increasingly isolated," said Linda Sanford, general manager of IBM's storage subsystems division, calling the new agreement "a game-changing play."
Compaq's shares finished down 1/8, or 1%, at 24 5/8, while IBM's stock closed down 3 1/4, or 3%, at 101 3/4.
Jay P. Stevens, an analyst at
Buckingham Research Group
in New York, called the announcement "very positive" for each company in the long run, even if it was not reflected immediately in the stock prices. "They've put a stake in the ground laying claim to a bigger piece of this very big market."
projects worldwide revenue for disk storage systems and storage management software will climb to $53 billion by the year 2003. IBM and Compaq's new agreement helps them compete head-on with
, the leading maker of mainframe computer disk memory hardware and software. The Hopkinton, Mass.-based company derives 80% of its total sales from storage hardware sales.
Shares of EMC finished down 1 1/8, or 1%, at 74 1/2.
"With the explosion of e-business and consumer demand for anytime-anywhere products and services, storage plays an increasingly vital role in our customers' Internet infrastructure," said Howard Elias, vice president and general manager of Compaq's storage global business unit. "This agreement assures both companies' customers a complete portfolio of critical storage technologies that will work seamlessly with future Compaq and IBM products."
Under their agreement, Compaq, which is based in Houston, will add IBM's "Shark" enterprise storage servers and select Tivoli systems management software to its portfolio of products. IBM will add Compaq storageworks modular array storage systems and software, and include its 10,000 RPM hard disk drives in the systems.
The agreement came as the investment firm
announced that it had cut its estimates for IBM's second-quarter earnings because it was concerned that the company's mainframe hardware and software sales would fall short of expectations. IBM, which is based in Armonk, N.Y., is the world's leading provider of mainframe computers.
Bear Stearns analysts lowered their estimates for IBM's earnings to 97 cents a share from $1.02. Still, the revised estimate is 6 cents higher than last year's second-quarter earnings. IBM is scheduled to report its earnings on July 19. The consensus among Wall Street analysts surveyed by
First Call/Thomson Financial
is $1 per share.
Bear Stearns, which has had an underwriting relationship with IBM over the past three years, maintains a buy rating on the company's stock as it expects revenue to rebound in the second half of the year with the introduction of a new server line, an increase in the company's services business, and potential for the PC business to become profitable again.
In a quarterly earnings preview released Wednesday,
projected earnings of $1 a share for IBM for the second quarter, despite ongoing concerns of sluggish mainframe computer demand.
Deutsche Bank estimated second-quarter earnings of 20 cents a share for Compaq, citing concerns over its top-line estimate. That's slightly lower than the consensus earnings estimates of 21 cents per share reported by First Call/ Thomson Financial.
Deutsche Bank noted the company's struggle to break even in the corporate PC business, internal turmoil caused by the reshuffling of high-level executives and pressure from
and other computer makers on its consumer PC business. Deutsche Bank does not underwrite either company's stock and does not rate either company.