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’

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
. 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.

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