Ethernet switching king Xylan Corp, Calabasas, California already had technology exchange and OEM agreements with Digital Equipment Corp, Hitachi Ltd and Alcatel NV under its belt, and yesterday it landed IBM Corp, which in its desperation to fill in the yawning gaps in its product line to fulfil Lou Gerstner’s dream of turning it into the networking company, is all but buying Xylan. The two have signed a joint technology development, sales and marketing agreement that will, over time, make Xylan IBM’s primary partner in local area network switching. Douglas Hill, a Xylan vice-president, described the deal to Reuter as as close as you can get without doing an acquisition. The IBM agreement runs for five years. IBM says the deal gives it access to industry-leading network Ethernet switching technology and enables it to narrow its dependence on other network equipment suppliers, and that the joint manufacturing deal will lead to higher margins than are possible with its product-by-product partnerships with companies such as Cisco Systems Inc, Bay Networks Inc and 3Com Corp, so the deal can be seen as moderately bad news for all of those, although IBM remains committed to support existing product partnerships with the others, particularly 3Com, since IBM’s networking strategy hinges on Asynchronous Transfer Mode backbone switches f rom 3Com. IBM will order $30m of Xylan products and has the right to exercise warrants for Xylan stock, up to a maximum of 5% of Xylan’s total outstanding, based on the achievement of pre-set business goals.The two will form a joint development orga nisation, and each will make use of key technology developed by the other for local networks. The deal covers a range of existing, transitional and futuristic technologies designed to transmit multimedia voice, video and data communications over net works. Eight new application-specific integrated circuit switch chips will be developed for Ethernet, Fast Ethernet and Gigabit Ethernet switching products. Xylan shares jumped $3 to $37.75 on the announcement. Xylan was the one super-hot initial public offering of the early part of this year that was solid company rather than a gale of hot air.
