Companies Sign $1.5B Outsourcing Deals with IBM

BOSTON (05/20/2000) - According to analysts, newly formed companies are increasingly outsourcing their information technology operations - a development that yielded two 10-year, $1.5 billion contracts for IBM Corp. last week.

Under an agreement with Aventis SA, IBM Global Services will manage mainframe computers and provide maintenance support for desktops and servers, as well as help desk and Internet operations. IBM will also support the Strasbourg, France-based pharmaceutical and life sciences firm's IT infrastructure with telecommunications and network services.

IBM also signed a deal to provide Web hosting and infrastructure services to The New Power Co., a nationwide energy provider launched last week by Houston-based Enron Corp. IBM and Dulles, Virginia-based America Online Inc. joined Enron to finance the company, with the three players anteing up a total of $120 million as an initial investment.

Bruce Caldwell, a senior analyst at Dataquest in San Jose, said the agreements reflect a trend among new companies to select outsourcing firms to supply technology services.

"The hottest thing in outsourcing is getting outsourcers involved in the development of new companies," said Caldwell. While start-ups have typically led the pack in the past, IBM's recent outsourcing agreements indicate that spin-offs and newly merged companies are jumping on the bandwagon, he said.

Focusing Resources

In Aventis' case, the agreement will "help IT managers concentrate on e-business, because they don't have to take care of IT infrastructure management," said Carsten Tilger, an Aventis spokesman. "This will help focus our resources in a better way."

Aventis, which had sales of almost $20 billion last year, employs 95,000 people in more than 120 countries. The company was formed late last year from the merger of Hoechst AG and Rhone-Poulenc SA.

Initially, IBM will service Aventis operations in the U.S., France, Germany, Japan and the U.K. Aventis has yet to determine how many additional countries will receive outsourcing services, but Tilger said service-level agreements will be determined on a country-by-country basis.

Albert Nekimken, a senior analyst at Input, an IT research firm in Vienna, Virginia, said the merger was likely a key factor in Aventis' decision to outsource to IBM. After a merger, "it's a challenge to consolidate IT operations. A neutral way to solve the problem is to outsource," he said.

Nekimken added that as in the U.S., European companies are experiencing an IT labor shortage, and labor laws make it tough for companies there to transfer workers across national borders. Hiring an outsourcer would afford Aventis greater flexibility in how it deploys labor, Nekimken said.

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