IBM to Outsource Server Manufacturing

Company signs $3.6 billion deal with Sanmina-SCI to build the Intel-based servers and workstations for IBM customers.

IBM, which a year ago this month announced it was outsourcing the manufacturing of its desktop PCs in a bid to reduce costs, said on Tuesday it is going to do the same thing with the bulk of its eServer xSeries systems and IntelliStation workstations.

The Armonk, N.Y., company has signed a $3.6 billion deal with Sanmina-SCI Corp., of San Jose, Calif.—the same company contracted in the PC-manufacturing deal—to build the Intel-based servers and workstations for IBM customers in North America, South America, portions of Europe, the Middle East and Africa

As part of the three-year deal, Sanmina—which will acquire IBM manufacturing facilities in Mexico and Scotland—also will fulfill orders for computing options for IBMs NetVista desktop systems, ThinkPad notebooks and the xSeries systems, IBM said. The company also will handle some of the custom configuration of ThinkPad notebooks.

However, IBM will continue building most of the ThinkPads in its facility in Shenzhen, China.

About 1,060 IBM employees in Mexico, Scotland and North Carolina will transfer to Sanmina as part of the deal.

Nancy Kaplan, a spokeswoman for IBM, said the company is constantly looking at what should be outsourced and what should be built in-house as it tries to streamline its supply chain into more of a flexible eBusiness on Demand model.

"Were very focused on boosting the performance of the supply chain," Kaplan said.

She said the deal last year to outsource PC desktop manufacturing has worked well for IBM. For example, the company has seen a 25 percent reduction in the standard manufacturing time.

"Basically, were building more of them," she said.

In another deal, IBM will pay Solectron Corp., of Milpitas, Calif., $120 million over three years to handle its Global Asset Recovery Services, part of IBM Global Financing that takes hardware at the end of their leases, and then restores and resells them. As part of the deal, Solectron will acquire IBMs refurbishing center in Raleigh, N.C.

About 250 IBM employees will be offered jobs with Solectron.

Both deals are expected to close next month, IBM said.