Dell and IBM Strike a Deal

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The competitive pressures of reducing costs and maintaining demand have yielded a new hookup in the computer industry. On Thursday, hotshot Dell and lumbering giant IBM announced a seven-year deal under which Dell will purchase $16 billion worth of equipment from IBM, including disk drives, flat-panel displays and memory chips. The arrangement also calls for the two companies to collaborate in the development of new technology. The agreement seems like a good deal for both companies, says TIME Wall Street columnist Daniel Kadlec, "but in the short run it looks like better news for IBM."

"IBM will be getting an instant hit" says Kadlec, "since it is the one that will be getting paid" from the sale of the equipment. For Dell the arrangement is a bet. "It is banking on long-term benefits from codevelopment," says Kadlec. In particular, Dell is hoping that the joint endeavor will create new markets. "The company had gotten used to a 50 percent growth rate," says Kadlec. "It is now looking for a way to keep up its growth in the face of a slack in computer sales." Initial reaction on Wall Street was favorable.