Big Blue notches up two services wins

Big Blue said Monday that it will take over inventory maintenance for the business applications Ericsson uses to run operations such as finance, manufacturing and human resources. A key goal of the five-year agreement is to consolidate the number of applications and to lower information technology costs, according to the Sweden-based telecom giant.

"Outsourcing of services for IT applications is part of Ericsson's ongoing changes within the IS/IT area, and our overall restructuring program (aims) at radically reducing the operating expenses and cost of sales," said Per-Arne Sandstrom, the company's deputy chief executive officer, in a statement.

Merrill Lynch analyst Steve Milunovich estimated that the Ericsson contract is worth $250 million.

In a separate announcement, IBM said that its Business Consulting Services unit, acquired from PwC Consulting last year, will advise Raytheon division Raytheon Aircraft on how to improve its process for procuring so-called indirect goods, which are materials such as office supplies that are not used in the manufacture of products. Financial details of the deal were not disclosed.

The deals reflect IBM's strategy of pursuing high-margin professional services contracts, according to a company representative. The application maintenance agreement and the business consulting engagement offer more potential profit than do traditional data center outsourcing services, where businesses essentially hand over the operations of corporate computing centers to IT services firms, the representative said.

Earlier this year, Ericsson chose IBM rival Hewlett-Packard to provide hosted IT services for five years. HP also signed a $3 billion outsourcing deal with Procter & Gamble in April.

As part of IBM's application maintenance and development deal, Ericsson will transfer IT staff to the Armonk, N.Y.-based tech giant in September.