Outsourcing deals are showing no signs of abating among corporations, as Ericsson and Raytheon said they finalized deals that call for IBM to help manage and streamline some of their supply chain systems.
Swedish phone giant Ericsson said it tapped IBM Global Services in a five-year-contract in which Big Blue is expected to manage and develop Ericsson's portfolio of IT software applications across the globe.
The contract finalizes a preliminary understanding that IBM and Ericsson struck in June. Although no value on the deal was released, a technology analyst for Merrill Lynch, Steve Milonovich, estimated the contract to be worth in excess of $200 million.
The outsourcing arrangement calls for IBM to head up Ericsson's the consolidation of its internal IT applications environment, such as supply chain and procurement applications built by SAP, the largest provider of such enterprise applications.
By helping Ericsson with its SAP enterprise applications, IBM also keeps a toe-hold in the door of a major client, one that recently awarded a major IT infrastructure outsourcing contract to Hewlett-Packard. Although no value on HP's outsourcing contract was released, analysts estimated its worth at nearly $1 billion.
The HP and IBM contracts are part of Ericsson's aggressive cost-cutting plans, detailed in April of this year. After giving HP the job of running some of its data center and IT infrastructure needs, the phone maker has moved, in the words of one analyst, to "bidding out its crown jewels: its entire global portfolio of software applications," which went to IBM this time around.
Whether the contracts qualify as business process outsourcing, however, is iffy, since the deal is more about managing the applications rather than the processes that the applications manage.
As is customary in major outsourcing agreements, some Ericsson staff will be transferring to IBM, which is expected in September, the companies said.
In a similar arrangement, aviation company Raytheon has also awarded IBM a business process outsourcing project, in which IBM is expected to manage and upgrade Raytheon's internal supply chain systems.
The contract, which is estimated to be worth a similar amount as Ericsson's, calls for IBM's Business Consulting unit to work with Raytheon Aircraft personnel in order to streamline organizational processes, improve planning and forecasting, reduce inventory costs and increase parts availability for customers.