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IBM, Boots Ink $1.1B Services Pact

Newly reinforced with its recently closed $3.5 billion merger with PwC Consulting, IBM Tuesday announced it signed The Boots Co., a United Kingdom-based pharmacy chain, to a decade-long, $1.1 billion services contract.

The comprehensive deal calls for IBM Global Services to provide consulting, hardware, software and other IT services to Boots. The two companies will also establish a research and development center in Nottingham, with an eye on combining Boots' retail expertise and IBM's technology resources.

"IBM will provide the challenging thinking and technologies Boots needs to support business growth," Richard Atkins, general manager of IBM Global Services, said in a statement. "We are going to help Boots increase the pace of innovation and accelerate their business transformation."

The deal calls for IBM to take over the management of Boots entire computing infrastructure, from its data center and systems to its telecommunications. The Global Services unit will roll out point-of-sale systems and Internet kiosks in each of Boots' 1,600 stores, most of which are in the UK and Ireland. About 400 Boots employees will join IBM as part of the transition.

"As a technology and consulting leader in the retail industry, IBM will help us use technology to create world class customer experience and enhance the service and offering we provide to our customers," said David Lister, Boots' CIO.

Boots anticipates the agreement will cut its IT cost by over $200 million in the next decade.

The large engagement comes as the IT services industry remains sluggish. Giga Information Group recently reported that spending on IT services would stay flat this year, following only incremental growth in 2001. This comes after the boom years of 1999 and 2000 saw the industry enjoy 20 percent annual expansion.

IBM, which has the largest computer services practice in the industry, has felt the sting. Revenues from Global Services have fallen for three straight quarters. No. 2 service company EDS said earlier this month that customers were putting off new services deals, as the economy continues to falter and a war with Iraq threatens further economic uncertainty.

Some analysts have pointed to the lack of so-called "mega deals"-those worth over $500 million -- as a symptom of industry malaise.

"A few deals could close by year-end but our sense is that most will get pushed out into the next budget year," Deutsche Bank analysts William Zinsmeister and David Richman wrote in a research note earlier this month.

However, mega deals remain out there. EDS has said it is close to finalizing a $1.5 billion deal with Dutch bank ABN AMRO to run its computer systems. Meanwhile, IBM has announced a few mega deals in the past six months, including a $563 million contract with Canadian banking concern Manulife Financial, a $1 billion deal with London-based production-technology company Invensys, and a $400 million contract with Finnair.

IBM spokeswoman Nancy Kaplan said the company's "Blue-Green" initiative has helped bring in mega deals. The program looks to use IBM's massive scale to expand engagements beyond simply providing technology services.

"What we're seeing is a move beyond the traditional provision of IT services," she said. "In the past, you saw a company like IBM doing an arm-and-legs deal."

Now, with IBM's Global Services unit about to reach 80,000 employees, Big Blue can offer clients like Boots extras like the R&D center. IBM had a similar provision for an innovation center in a $1 billion deal signed with Air Canada last July.

In a separate announcement, IBM said its latest version of Lotus Notes collaboration software was now available. The company said Lotus Notes and Domino 6 would help users save money by cutting down on the disk space it takes up and network traffic it creates.