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IBM Lands Lucrative Outsourcing Deal

That deal may indicate that the hardware company has aspirations to become a full-service consulting and integration firm on IBM's model. EDS is primarily known for providing basic outsourcing, but will bolster H-P's place in the services business.

Although the deal is sizeable, averaged over the life of the contract, it represents just $8.1 million a quarter, or 0.08% of IBM's services revenue for the most recent quarter. The unit's services business took in $9.7 billion, up 17% year over year.

"The quarterly impact ... will not be major," Zakharov said. However, IBM will be able to bill up front for consulting and systems integration. "The deal is likely to bring more revenue initially," while the labor outsourcing service tends to generate most of its profit at the end of the contract, he wrote.

Despite its high-dollar value, the Bristol-Myers deal is not IBM's largest. In 2003, Big Blue signed one of the first big labor outsourcing deals, valued at $400 million over 10 years, with Procter & Gamble (PG - Get Report), according to Zakharov.

The BMY deal "shows that IBM is well entrenched to help [the] largest conglomerates" with labor and outsourcing, Zakharov said.
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ACN $107.46 0.00%
BMY $67.85 0.00%
IBM $138.46 0.00%
HPQ $12.61 0.00%


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