LM Ericsson Telephone has signed a five-year outsourcing agreement valued at $US150 million with Compaq Computer for IT services and support to around 20,000 end users in the telecommunications equipment maker's Sweden-based units.

The contract also includes the transfer of some 170 Ericsson staff to Compaq, the Stockholm-based company said in a statement.

Ericsson expects the outsourcing pact to result in annual savings of more than $11.5 million, the company said.

The agreement builds on a memorandum of understanding for desktop infrastructure support signed by Ericsson and Compaq in December last year. As part of the deal, Compaq during the first year will replace 16,000 PCs, Ericsson said.