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HP, NEC Ally on Outsourcing

Looking to build each other's IT service departments, computer giants Hewlett-Packard and NEC Thursday said they will work together on outsourcing projects for joint business customers.

The alliance will initially target enterprise customers based in China, Japan and the United States with plans to expand to other regions, including Southeast Asia and Europe. The "Memorandum of Understanding" was announced by in Tokyo by HP chairman and CEO Carly Fiorina and NEC president Koji Nishigaki.

Palo Alto, Calif.-based HP and NEC said they plan to establish a joint marketing team to develop and market new service offerings. Services would range from selective managed services to comprehensive outsourcing, in which the alliance would take over a customer's IT assets and associated human resources.

"Enterprise customers, particularly those with large scale IT systems, are increasingly turning to outsourcing to reduce costs and to respond to business changes rapidly," said HP executive vice president Ann Livermore. "This alliance is a powerful combination of HP's worldwide presence and leadership in open, distributed environments as well as NEC's extensive experience with large-scale projects and knowledge of mainframe and open, mission-critical technology."

The new alliance builds on the existing relationship between HP and NEC, which builds on their past successes in the financial and telecommunications industries.

"NEC and HP are already successfully expanding the global reach of NEC's open, mission-critical systems, which make 24x365 operation and fast response to changing market demands possible," said NEC senior vice president Toshiro Kawamura. "We decided to bring together each company's rich experience, resources and know-how to work towards gaining leadership in the outsourcing business, which is expected to enjoy double-digit growth."

NEC has been providing various services to about 2,500 users, ranging from ASP services to core system outsourcing that addresses the individual needs of customers in financial, manufacturing and other industries.

HP Services, which includes customer support, managed services, and consulting and integration, has been gaining strength since the merger back in May. Currently, the division has 65,000 services professionals in 160 countries, but more importantly, the group is gaining notoriety for the contracts it is attracting including mega deals with Microsoft , Nokia , a $1.5 billion multi-year managed services win with CIBC, and a $225 million services and software contract with the Department of Veterans Affairs.

According to HP's latest SEC filings, revenue for HP Services grew 4 percent sequentially and declined 3 percent year over year to $3.1 billion. Operating profit for HP Services was $381 million, or 12.3 percent of revenue, up 39 percent sequentially and down 10 percent year-over-year.