December 18, 2002 10:07 AM PST

IBM snags $2.5 billion IT services deal

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Deutsche Bank is betting that IBM can save it a billion bucks over the next decade.

The German bank and Big Blue on Wednesday said they signed a 10-year contract worth $2.5 billion to have the computing giant run the bank's data centers in continental Europe.

Hermann-Josef Lamberti, chief operating officer at Deutsche Bank, said in a statement that the bank expects the outsourcing deal to save it roughly $1 billion, as the company shifts from paying fixed costs for its computer center operations to a variable-cost plan based on usage.

IBM calls its services "e-business on demand technology." "They pay for what they use," said Paul Sweeny, general manager of the financial services unit of IBM Global Services. "Just like a utility."

As part of the agreement, about 900 Deutsche Bank employees will move over to IBM during the first quarter of next year. No Deutsche Bank IT workers are being laid off, Sweeny said. IBM will take over the bank's computer centers and smaller server computer sites in Belgium, Germany, Italy, Poland, Portugal, Switzerland, Spain and Luxembourg. It also will set up a new data center in Germany's Rhine-Main region.

Information technology services firms such as IBM, Electronic Data Systems and Computer Sciences have struggled to snag new business during the past year's technology spending slump. For the nine months ended Sept. 30, for example, IBM Global Services' revenue dropped 0.4 percent year over year, to $25.8 billion.

But there has been some momentum in the market recently. EDS signed a $4.5 billion, 10-year deal to revamp and manage Bank of America's voice and data networks, while Hewlett-Packard landed a five-year contract worth "hundreds of millions" of dollars to manage DirecTV's customer billing technology. In addition, Computer Sciences inked a $23 million contract with the U.S. Missile Defense Agency to help develop advanced capabilities for the ballistic missile defense system.

IBM has put together a string of contract wins in its financial services unit. The company said that in the past month, it has signed four IT services deals with financial services customers. The four deals, which include the Deutsche Bank contract, are worth more than $3.5 billion in total, IBM said.

One particularly bright spot for IBM has been outsourcing agreements, which can involve managing a company's IT infrastructure or operating its tech support service. IBM's Sweeny wouldn't give specific numbers for IBM, but said he expects overall industry revenues in financial-services IT outsourcing to jump by 20 percent in 2002.

Sweeny said that banks and other financial institutions are growing more comfortable with turning over their computer systems to an expert provider. Outsourcing also allows customers to focus investments on their core business, he added.

"The outsourcing market overall is very active," Sweeny said.

 

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