IBM's $120M beats HP for Groupe Bull stake

Electronic News, Feb 3, 1992 by James Fallon

PARIS -- IBM last week beat Hewlett-Packard for a slice of state-owned Groupe Bull where the real stakes were a larger share of the French-owned public procurement market and broader market penetration of the winner's RISC architecture.

IBM won French government favor with an offer of about $100-$120 million for five to 10 percent of Bull, which has lost money in the past three years, and a willingness to take up to $100-$150 million of portable computers from Bull's subsidiary Zenith Data Systems to market under the IBM name.

Hewlett-Packard admitted its financial offer was lower and that it had no interest in again marketing the ZDS portables since it has a PC factory in France. HP once marketed ZDS portables before ZDS was sold by Zenith to Bull.

Further broadening its ties with technology companies, IBM last week also agreed to work with the state-owned SGS Thomson on semiconductor development and to increase its purchases of SGS Thomson chips. IBM officials declined to provide details, but it reportedly is interested in the Transputer from SGS Thomson subsidiary Inmos. It alreeady uses the chip in some of its products and reports are it may increase its purchases to as much as $100 million a year.

The French government also claimed SGS Thomson is in talks with HP about the possibility of it taking an equity stake in the money-losing French/Italian semiconductor company and cooperating with it in chip development. An HP official dismissed the talk of the U.S. company buying a stake in SGS Thomson, however, stressing the discussions focus only on technology cooperation.

IBM was chosen over HP as a Bull partner after what was described as an internecine battle between French government officials. French Prime Minister Edith Cresson reportedly backed HP on grounds its RISC technology is considered superior. But Bull president Francis Lorentz and French Finance Minister Pierre Beregovoy wanted IBM because of its better offer.

The deal with IBM replaces Bull's previous strategy of using MIPS Computer Systems' RISC architecture in its DPX/2 Unix line. That arrangement soured last year after MIPS shifted its R&D attention to desktop and other small systems and it became apparent that Bull needed a more comprehensive agreement with a larger vendor.

Bull itself had not joined the MIPS-affiliated ACE group, so the switch to IBM should have little impact there. Mr. Lorentz said ZDS would remain a member and focus on the x86/Windows NT side of the group's specifications.

Mr. Lorentz said the technical and manufacturing cooperation agreed to by IBM also "was more balanced" than it would have been with HP, a comment analysts interpreted as an indication he felt more jobs at Bull would be protected through a deal with IBM.

Another point in IBM's favor, Mr. Lorentz added, was its willingness to market the ZDS portables, something HP did not offer to do. IBM's agreement to source circuit boards from a Bull plant in France was a further plus that Bull hopes to use to solicit more business of that sort.

The exact terms of the deal remain sketchy, but IBM and Bull hope to complete an agreement by the end of February. IBM's exact share in Bull will depend on how much money IBM decides to inject into the French group; the French government then will decide what percentage stake this amount represents. IBM's share will be larger than the 4.9 percent holding of NEC, which provides Bull with its top-of-the-line mainframes.

French officials said IBM was expected to buy a 5.7 percent stake in Bull for about $100 million. However, Mr. Lorentz termed that "only one possible approach," adding that the actual investment depends on Bull's 1991 results and on whether the government's own proposed $1.46 billion cash infusion is approved by a European Commission.

C. Michael Armstrong, chairman of IBM World Trade Corp., also would not comment specifically on the equity question. "Everything I've been told (the government) said I agree with, and everything Mr. Lorentz said I agree with," he noted during the Paris press conference.

The agreement covers five areas -- technology, PC development, interoperability, manufacturing and equity. Under the technologydeal, IBM will license to Bull its Power and PowerPC architectures for Bull's RISC products. Bull also will adopt operating systems that ensure its UNIX product line is compatible with IBM's.

Bull will oversee the development of multiprocessing technologies to extend the range of products based on the IBM RISC architectures, IBM said, and will work closely with IBM's Computer Design Center set in collaboration with Motorola and Apple.

In addition to marketing the Zenith PCs, IBM is in talks with Bull about Zenith developing future portable computer products for the IBM range. An IBM official declined to reveal what Zenith products it will market, or what areas future products might cover. But he admitted the Zenith products will be complementary to IBM's existing product lines and repeated IBM's plan not to develop portable PCs based on Intel's 386SL chip -- an area already covered by Zenith PCs.