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TheStreet Open House

IBM Lands Lucrative Outsourcing Deal

SAN FRANCISCO -- IBM (IBM - Get Report) landed a large outsourcing contract that bolsters IBM's lead as a high-end systems integrator.

Big Blue's Global Services unit won a 10-year contract with Bristol-Myers Squibb (BMY - Get Report) Thursday valued at $324 million.

Shares of IBM were up $1.41, or 1.1%, to $128.96 on the news, as it neared its 52-week high of $129.99 set just a week ago. The stock has appreciated 32% since early January, when macroeconomic fears pushed it down to $97.59. It now trades at 15 times 2008 earnings and 13.5 times 2009 earnings.

"This is a good win for IBM and a great extension of the relationship with BMY," Technology Business Research analyst Eugene Zakharov said in an email response to questions Thursday.

Given market trends and the value of the contract, "this deal with BMY is very important for IBM" as 10-year deals have become rare, Zakharov stated. Just over 50 IBM clients have signed 10-year contracts in the past four years, with an average value of $110 million.

"Human-resources outsourcing deals of this type that include consulting, systems integration and outsourcing can be very profitable," Zakharov stated. IBM will build a human resources system that then provides a recurring revenue stream for maintenance.

The deal includes integration of application software from developer SAP (SAP - Get Report).

IBM competes primarily against Accenture (ACN - Get Report) for the type of services covered by this deal to automate and re-engineer a system.

Hewlett-Packard (HPQ - Get Report) also is serving notice that it wants to compete in that space with its recently announced buyout of Electronic Data Systems (EDS - Get Report).

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