Nortel Networks Corp, communications equipment-maker, on Friday (May 20), announced plans to work with IBM on research and development, helping Nortel to cut costs and marking a victory for IBM as it pushes into contract engineering services. Executives from Brampton, Ontario-based Nortel and IBM of Armonk, New York, said they were setting up a joint research and development center in Research Triangle Park, North Carolina, where both have large, established research operations Financial terms were not disclosed.
The two companies said initial research would focus on a handful of projects to create a framework for future collaboration. Later projects may cover the breadth of Nortel product development in markets from telecom carriers to corporate enterprises to government clients, officials said.
Lance Travis, an analyst who tracks the research and outsourcing industry for AMR Research in Boston, predicted IBM could eventually capture a significant share of the two billion dollars Nortel spent on research and development last year.
"This has the potential to be very, very big," said Travis, who has been briefed on the alliance plan. "It could be worth up to one billion dollar a year to IBM."
IBM will provide technology assets such as hardware, software and technical services, research and development expertise and engineers to assist on Nortel research projects.
"We aspire to it being very significant," said John Lutz, vice president of IBM's On Demand business, an arm of the computer maker that helps customers reorganise key business operations.
"Nortel researchers will be the customer-facing half - helping their customers define the next generation of network switches," Travis said.
"IBM becomes the back engine of the Nortel research and development process," he said.
Nortel has been under intense pressure to cut costs since the telecom boom went bust in 2001. It has slashed two-thirds of its once 95,500-strong workforce and outsourced some manufacturing to contractor Flextronics International Ltd.
For IBM, the deal is the latest in a growing applied research business where IBM engineers are working with customers such as Boeing Co and Honeywell International Inc to develop products faster and more efficiently.
The catalyst for the Nortel alliance was joint work the two did to help Nortel on its recently announced IP Multimedia Subsystem (IMS), which combined Nortel's network and multimedia expertise with IBM strength in integrating computer services that are necessary to manage such systems.
IMS allows telecom carriers to run Internet-based television, wireless multimedia picture sharing services and even mobile text messaging.
"This collaboration is an innovative way to reduce costs and at the same time to grow revenue," Nortel Chief Strategy Officer Dion Joannnou said in a joint interview with IBM's Lutz.
Lutz said one IBM and Nortel joint project is an effort to build so-called "blade servers" - vast arrays of low-cost, but powerful computer servers that can run a range of the latest telecommunication network features.
North Carolina is home to Nortel's second largest development center with 2,600 employees. Neither Nortel nor the IBM would specify how many researchers could eventually be dedicated to joint development projects.
Research Triangle Park is also home to large IBM development operations and was previously the center of IBM's network products business before it sold the unit to Nortel's rival Cisco Systems Inc in the 1990s.
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