J.P. Morgan signs 7-year, $5B outsourcing deal with IBM

J.P. Morgan Chase & Co. has announced a new seven-year, outsourcing deal with IBM valued at more than $5 billion.

Under the agreement, New York-based J.P. Morgan Chase will outsource a significant portion of its data processing technology infrastructure, including data centers, help desks, distributed computing, data networks and voice networks, to IBM.

In addition, approximately 4,000 J.P. Morgan Chase employees and contractors will be transferred to IBM in the first half of 2003, said J.P. Morgan spokesman Michael Dorfsman.

However, J.P. Morgan Chase said it will retain application delivery and development, desktop support and other core competencies.

Under the contract, IBM will deliver "on demand" computing services to J.P. Morgan Chase. That means the bank will buy and pay for only the IT services it needs, rather than buying fixed IT services and paying fixed prices.

Dorfsman said the pact will allow J.P. Morgan Chase to save money, expand its business, offer added benefits to shareholders and clients and provide more career opportunities for employees.

In October, IBM announced a fundamental change in how computing resources would be delivered to businesses, allowing customers to tap into its vast computing network and rent server processing, data storage and other IT resources on a pay-as-you-use basis.

IBM said its new on-demand computing strategy will transform a company's business by allowing it to better focus on core business operations.

One specific technology developed by IBM Research to help J.P. Morgan Chase transform its core business processes is UMI, or utility management infrastructure, code-named Blue Typhoon, said Eric Ray, vice president for the financial markets industry at IBM Global Services.

Based on open standards, UMI is advanced software from IBM that will tie together the bank's different types of servers and storage devices without requiring new applications to be written for each system.

This "resilient infrastructure" will allow the bank's computer systems around the world to perform at greater efficiency, while improving system availability, reliability and security, providing scale and capacity on demand, as well as the ability to self-heal, Ray said.

Susan Cournoyer, an analyst at Gartner Inc. in Stamford, Conn., said the deal reflects the fact that IT costs in the financial services industry have remained constant whether business is good or not.

"This deal will help J.P. Morgan Chase address this fact," she said. "For IBM, J.P. Morgan Chase is a marquee customer giving a stamp of approval for [IBM's] outsourcing model. It's a validation of IBM's focus on its IT services business, [rather than] its long-ago model of its focus on hardware."

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