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IBM banks billion-dollar 'utility' deal

Big Blue lands a $2.6 billion deal to provide pay-as-you-go IT outsourcing services to Nordea, one of Northern Europe's largest financial services companies.

IBM has won a billion-dollar deal to provide utility computing services to Nordea, one of Northern Europe's largest financial services companies.

Nordea said Wednesday that the IBM outsourcing pact, worth $2.6 billion (2.2 billion euros), is part of a push to consolidate its internal IT production operations. In addition, the deal will move Nordea from paying fixed costs for its IT production to paying only for the systems and technology it needs via IBM's "on-demand" services.

"Shifting our IT operations from a fixed investment to on-demand is valuable from a financial standpoint, as it will eliminate excess capacity and also give greater transparency to overall resource consumption," said Jarle Haug, head of group IT at Nordea. "This also represents a technology consolidation effort that would have been a giant challenge to try to do ourselves."

In order to lower IT overhead and focus on core business operations, companies have been turning to service providers such as IBM, Electronic Data Systems and Hewlett-Packard to take over computer systems and provide other services. One branch of this is utility computing, another name for on-demand computing, in which corporate customers buy applications, storage or processing power on a pay-per-use basis, much like they do for electricity or telephone service.

IBM described the Nordea deal as its third-largest customer win in on-demand computing, behind agreements with American Express and J.P. Morgan Chase. Armonk, N.Y.-based IBM continues to tout its momentum in outsourcing services, in particular in utility computing.

Under the 10-year deal, IBM and Nordea will form a joint venture that employs about 900 former Nordea workers. Haug said Nordea plans to consolidate a number of IT operations in the venture and will merge four separate data centers into one. Nordea also aims to standardize of all of its network and desktop management operations, as well as automate the company's asset-tracking and workflow-scheduling, among other tasks.

"An important thing to point out is that we're foreseeing a reduction in IT costs, despite experiencing volume growth in (IT-heavy) businesses such as e-banking," Haug said. "We thought IBM was the only vendor able to provide everything we'll need to execute on this."

The companies said they would jointly staff a Transformation and Innovation Center, designed to help Nordea create further cost savings and improve its IT performance.

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"It's important to point out that we're not only adjusting Nordea's finances in regards to usage," said Leif Lindqvist, general manager of IBM Global Services for the Nordic region, "but also transforming the company's infrastructure to make it more flexible in respect to its IT demands."

While giant IT outsourcing deals often carry significant costs for IBM, in terms of capital expenses and personnel additions, Lindqvist said there would be no immediate investment on Big Blue's part to launch the Nordea joint venture.

In related news, a report released Wednesday by research firm IDC named IBM Global Services as the leader in the worldwide outsourcing market. The study said that in 2002, IBM captured more than $15.3 billion in revenue, or a 22.4 percent share of the segment, compared with $11 billion in revenue, or a 17.3 percent share, in 2001.