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Report: Big Blue still biggest in IT outsourcing

IBM leads the pack in the $68.5 billion information technology outsourcing market, but Hewlett-Packard and a handful of overseas companies are gunning to catch up, IDC says.

IBM leads the pack in the $68.5 billion information technology outsourcing market, but Hewlett-Packard and a handful of overseas companies are gunning to catch up, says research company IDC.

In a recently published report, IDC said Big Blue claimed about 22 percent of the global IT outsourcing market in 2002, with $15.3 billion in outsourcing services revenues. IBM seized a quarter of all U.S. outsourcing sales last year, mainly through its Global Services unit, the report said.

Electronic Data Systems, Computer Sciences and Fujitsu nabbed the next top spots in IDC's global rankings, with $11.1 billion, $3.8 billion and $3.3 billion in outsourcing revenues, respectively. Together the four companies command close to half of worldwide IT outsourcing revenue, IDC said.

IDC did not immediately provide historic data, so it's unclear how market shares have changed.

Outsourcing is a growing segment of the IT industry that involves companies handing off major tasks such as data center management, software development, call center operations, and desktop and network support, to an outside company. The selling point of such services is the promise of savings, obtained in part by farming out tasks to workers in India and other developing countries.

IDC expects the worldwide IT outsourcing services market to grow 7.7 percent a year over the next five years, to reach nearly $100 billion in sales in 2007.

Although the revenues are big, the profit margins in this market can be slim. Outsourcing services companies frequently have to make substantial investments in IT equipment, facilities and personnel. Yet IBM, HP and others prize these multiyear contracts because they can help bolster higher-margin sales of hardware and software by creating a long-term, interdependent relationship with clients.

HP, which ranked just below Fujitsu with a 1.8 percent share of the global market in 2002, is one of the challengers to watch, according to IDC. The company's on-demand, or utility computing, initiatives are helping it win more outsourcing business, the report said.

Deutsche Telekom's T-Systems services unit in Germany; Fujitsu and NEC in Japan; and Cap Gemini Ernst & Young in France are looking to gain stronger footholds in the $30.6 billion U.S. market, IDC said.