IBM On-Demand Hits Target

By Sean Michael Kerner

IBM’s on-demand strategy initiative got a major boost with the announcement of a ten-year IT outsourcing contract with retailer Target Corp. . Financial terms of the pact were not released.

“Our long-term relationship with IBM has given Target the kind of IT flexibility that enables us to execute our strategies with speed and success,” said Target vice chairman Jerry Storch in a statement. “Implementing IBM’s on demand initiative reflects Target’s commitment to leveraging technology that drives business results.”

As part of the deal, IBM will manage Target’s mainframe infrastructure. Big Blue said the on-demand capabilities of the z990 mainframes allows enterprises to power up additional mainframe engines as needed.

Utility computing, or “on-demand” as it is referred to by IBM, is a growing trend in IT outsourcing that allows enterprises access to bandwidth, hardware and associated infrastructure on an as-needed basis. The general idea is to let enterprises scale more rapidly as required and to only pay for the services that they need rather than investing in their own costly and underutilized “always-on” infrastructure.

The Armonk, N.Y.-based IBM has pledged to invest $10 billion over the next decade in research on demand initiatives and has recently opened its first “centre of competency” in that effort.

Equifax, John Hancock, Nordea and ING have all been signed up by IBM in on-demand IT sourcing agreements over the course of 2003. During the year, IBM also expanded an initiative with Akamai to offer on-demand web application serving services.

Although IBM’s on-demand strategy has been racking up client wins, one financial analyst has raised questions about the company’s financial projections.

According to a research note from Bear Stearns analyst, Andrew Neff, IBM will miss fourth quarter target for IT services deals by $1-2 billion. He notes that IBM had projected $14 billion dollars of revenue for the quarter and, by his estimates, the company had booked $12-13 billion, including the undisclosed terms, from the Target deal.

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