With the tech industry still buzzing over its apparent decision to sell its PC business, IBM underscored its ongoing transformation by announcing today that it had landed a contract worth nearly US$1 billion to supply Internet-based telephone and data services to British banking giant Lloyds.
The seven-year deal carries a price tag of around $969 million and calls for IBM to build a network that will accommodate some 70,000 voice over Internet protocol (VoIP) telephone sets and unite voice, video and data traffic onto a single network.
The deal is the sort of technology outsourcing and service agreement that has become an increasingly large and profitable part of IBM’s overall business and the sort of development that analysts say makes it likely that Big Blue will soon divest its personal computer making business.
This year, IBM expects about half of its $90 billion in revenues to come from outsourcing and other services. IBM CEO Sam Palmisano has said the market for such work will eventually grow into a $500 billion a year opportunity, one that has attracted nearly every major tech firm with global reach.
IBM is serving as strategic partner and will oversee the project, which also involves separate contracts for England-based Vanco, which will connect branch offices and ATM machines to the networks, and Vtesse Networks, which will supply the high-capacity fiber network.
IBM said the implementation would be the largest combined network of its type ever undertaken in Europe and would reduce the bank’s network costs while also providing more flexibility by enabling it to use bandwidth as needed to send voice or data.
Tony Cronin, a general manager in IBM’s European financial services division, said the network will provide “dramatic efficiency improvements. We will also open complete new horizons in terms of possible applications to support Lloyds TSB’s business.
“Business processes that might once have been restricted by the inflexibility of the infrastructure can now be enhanced in response to competitive or customer demands,” Cronin added.
In addition to underscoring the importance of services for IBM and serving as a reminder of its ability to land massive, long-term contracts, the agreement also emphasizes that the tech giant is comfortable venturing into newer areas that go beyond simple outsourcing or services.
Late last month, in another deal that goes well beyond the typical tech consulting arrangement, IBM signed a unique deal with Honeywell in which Big Blue will take over Honeywell’s research and development initiatives.
The latest deal also indicates that IBM is ready to take on even complex voice-based networks, an area once left to telecommunications companies.
Yankee Group analyst Andy Efstathiou said IBM is billing voice-and-data convergence as another twist on utility and on-demand computing. Companies can draw bandwidth as they need it. For instance, during times when phone traffic is heavy, bandwidth can be used to handle calls, while data packets that are not urgent can be sent later when traffic has slowed.
“If they can convince enterprises that their approach makes the most sense, they could win a substantial amount of business in this area,” Efstathiou added.
Europe has been a particularly ripe area for IT services deals for IBM as well as its major competitors. Last year, it landed a $1.1 billion deal with Switzerland-based AMM shortly after HP landed a deal with Telecom Italia.
Meanwhile, speculation continues to swirl about IBM selling its PC business.
The latest round of published reports suggest a deal with China-based Lenovo could be announced as soon as this week.
Analysts have suggested IBM could rake in as much as $2 billion through the sale, which was brought about by ever-shrinking profit margins in the increasingly competitive PC business. IBM has had no comment on the reports, calling them “market rumors.”