IBM, J.P. Morgan Sign $5 Billion Deal

IBM Global Services calls seven-year contract "the largest computer services deal in the financial services sector ever."

IBM Global Services this morning announced that it has won the much-anticipated J.P. Morgan Chase & Co. outsourcing contract, valued at over $5 billion.

The seven-year outsourcing contract is "the largest computer services deal in the financial services sector ever," declared Eric Ray, vice president of financial markets for IBM Global Services in Somers, N.Y.

The deal calls for IBM Global Services to take over a range of IT functions, including data center operations, help desk support, and day-to-day operation of J.P. Morgans distributed computing resources as well as voice and data networks. Some $1 billion of the $5 billion will be spent on network managed services.

IGS beat out Electronic Data Systems and Computer Sciences Corp. for the outsourcing contract, which calls for about 4,000 J.P. Morgan IT employees and contractors along with certain computing resources to move to IGS by mid-2003.

Outsourcing momentum in the financial services sector is strong and growing, with the J.P. Morgan deal capping off a string of wins for IGS, including deals with Deutsche Bank, American Express, DBS Bank in Singapore and Thai Farmers Bank in Asia.

"Companies in financial services are looking for more flexibility in their operations. Theyve found themselves at a point where they have trade volumes that are way down, the assets under management are decreased, but they have a large, fixed computing infrastructure," said IGS Ray.

"The financial services sector has really gone the outsourcing route. Its been a tough year for them, and there has been a lot of cost pressure. Outsourcing is a long-term response to those conditions," said Bill Martorelli, an analyst with Giga Information Group in Cambridge, Mass. "IBM is getting a large share of these deals," he added.

IGS won the deal over competitors thanks to a long-standing relationship between IBM and J.P. Morgan Chase, the technology innovations it is bringing to the table and the cost savings it will help them to achieve, according to Ray.

The outsourcing contract is unique in a number of respects. "Were creating something weve developed for the financial services sector called a virtual resilient computing infrastructure where we provide on-demand, high-availability, resilient services," said Ray. IGS will use two facilities interconnected with dark fiber to provide instantaneous backup and recovery services in the event of a disaster. Such "pods," as IGS calls them, are located on the East Coast and in the United Kingdom.

The deal also calls for IGS to create a distributed computing infrastructure that draws on IBM and non-IBM (largely Sun Microsystems and Hewlett-Packard) systems that can be virtualized to provide an internal, pay-as-you-go utility. That capability will draw on IBMs Blue Typhoon initiative, now called the Utility Management Infrastructure. UMI is software that ties together different types of servers and storage systems without having to develop new applications for each system. The UMI will allow IGS and J.P. Morgan Chase to create a virtual pool of computing resources that can be accessed and deployed as necessary.

Also unique to the contract is a service visualization capability in which IGS will instrument both the technology and business process layers to allow J.P. Morgan Chase to see how well the technology is supporting the business processes.

The worldwide deal covers the 50 countries in which J.P. Morgan Chase does business.