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IBM lands $1.1 billion IT services deal

Under the megadeal, Big Blue will take over the operation and support of information systems for ABB, a Swiss power and automation technologies company.

IBM has inked a $1.1 billion, 10-year information technology services contract with ABB, a Swiss power and automation technologies company.

IBM Global Services will take responsibility for the operation and support of ABB's information systems infrastructure in 14 countries in Europe and North America, representing some 90 percent of ABB's information systems infrastructure. Under the deal, announced Monday, IBM will take over the management of ABB servers, operating systems, corporate networks, personal computers and help desks.

The deal builds on two pilot contracts between the two companies signed in 2001 worth about $600 million.

"This long-term deal allows us to significantly take down costs while benefiting from IBM's global expertise," said Peter Voser, ABB's chief financial officer. "It benefits both ABB and IBM."

ABB expects IBM's "on demand" IT system--which involves pricing that varies according to usage--to save it at least $50 million per year over the 10-year period, according to Big Blue.

About 780 ABB employees will transfer to IBM under the agreement. Another 510 ABB workers already have shifted to IBM under the pilot contracts.

The new ABB contract emphasizes IBM's strength in landing IT infrastructure outsourcing deals worth a billion dollars or more. IBM garnered most of these megadeals in 2002, according to research firm Gartner Dataquest. IBM won seven of the blockbuster deals in 2002 and shared an eighth deal with software services provider Keane, Gartner said. For the year, there were at least 14 megadeals worth a total of $28.4 billion compared with nine megadeals in 2001 worth a total of $15.1 billion, Gartner said.

IBM appears to be on a roll this quarter when it comes to IT services wins. During a July 16 conference call, IBM Chief Financial Officer John Joyce said that "both Qwest and the state of California just signed. We're off to a very good start in the third quarter, with multiple deals totaling almost $3 billion." That total did not include the ABB deal, according to an IBM representative. In the second quarter of this year, IBM's total signings for services, including strategic outsourcing, were $10.7 billion.

Outsourcing contracts, which involve a business farming out control of tech duties, such as applications development, or business tasks such as accounting and finance, have been a bright spot for IT services providers. According to TPI, a firm that advises companies on outsourcing contracts, the total value of large outsourcing deals (those worth more than $200 million) rose from roughly $46 billion in 2001 to about $50 billion in 2002.

TPI, however, has predicted the outsourcing market will cool off this year. The total value of large outsourcing contracts should drop by 10 percent to 20 percent in 2003, according to the firm.

Other companies competing for IT services contracts include Hewlett-Packard, Electronic Data Systems and Accenture.