IBM wins J.P. Morgan outsourcing contract
By Jason Kelly
Bloomberg News Service
ARMONK, N.Y. International Business Machines Corp. won a contract worth more than $5 billion to run J.P. Morgan Chase & Co.'s data systems, the computer maker's biggest services deal in two years.
IBM, the world's biggest seller of computers and related services, was selected over No. 2 Electronic Data Systems Corp. last month to negotiate the seven-year deal exclusively. Almost 4,000 workers at J.P. Morgan who perform tasks such as installing computers and developing software will join IBM, IBM spokesman Jim Larkin said.
Similar to American Express Co., which awarded a $4 billion contract to IBM in February, J.P. Morgan will order some services on a pay-as-you-go basis, a business IBM Chief Executive Samuel Palmisano has said will expand the company's $35 billion services division. Services sales, which made up 41 percent of IBM's 2001 total, rose 5.4 percent last year as hardware sales dropped 12 percent.
Palmisano, who will become IBM's chairman tomorrow after succeeding Louis Gerstner as chief executive last March, said IBM will spend $700 million to $800 million in the next year to market computer services on a per-use basis.
Financial services companies like the on-demand outsourcing option because it allows them to better manage expenses, and IBM's technology allows for better security, Paul Sweeny, an IBM general manager, said.
"This is a way to match costs with the revenue line as their business goes up and down," he said.
The shares of IBM fell $1.11 to $76.25 at 4:01 p.m. in New York Stock Exchange trading. New York-based J.P. Morgan, rose 19 cents to $23.99.
"It is too soon to tell whether (IBM's on-demand effort) will be successful," said Jess Scheer, who tracks computer and consulting contracts as editor of Consultants News, a trade publication.
The 4,000 J.P. Morgan employees will continue to work in their current locations, Sciales said.
"The theory behind these engagements is that IBM can do it cheaper," Scheer said. Computer-services companies typically are required to retain a percentage of the workers for the life of the contract. "I don't think they could pass out 4,000 pink slips tomorrow."