IBM Loses JPMorgan Outsourcing Deal

UPDATED: Big Blue is out as JPMorgan cancels a multi-billion-dollar outsourcing contract due to its merger with Bank One.


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Posted September 15, 2004

Clint Boulton

UPDATED: JPMorgan Chase & Co. has canceled its existing multi-billion-dollar technology outsourcing deal with IBM due to its recent merger with Bank One.

In January 2005, JPMorgan Chase will regain control over the management of data centers, help desks, distributed computing, data networks and voice networks, as well as 4,000 employees and contractors. The firm had ceded the technology and workers to IBM as part of the original December 2002 deal.

JPMorgan officials did not respond to requests for comment. The New York financial services firm with assets of $1.1 trillion said in a statement the July 2004 merger with Bank One created an entity with enough tools, processes and scale to build its own global infrastructure services organization.

"We believe managing our own technology infrastructure is best for the long-term growth and success of our company, as well as our shareholders," said Austin Adams, JPMorgan's CIO, in the statement.

The deal is a blow to Armonk, N.Y.-based IBM, which is competing with EDS and HP for large, long-term outsourcing contracts. The financial services industry is generally considered one of the more lucrative spaces for high-tech companies to target.

However, both companies confirmed the disbanding of the deal does not signal a fray in their relationship.

"JPMorgan will remain a significant client of IBM's and a close technology partner of the firm," IBM spokesman James Sciales told internetnews.com.

"We value our strong relationship with IBM, and we will continue to partner in delivering selected technology infrastructure services to several of our specific lines of business," said Adams in the statement.

Moreover, IBM said in a filing with the Securities and Exchange Commission that on a year-to-year basis for 2005, IBM expects the cancellation of this contract will have a positive impact on IBM earnings per share. IBM did say its backlog of IT services will be revised accordingly as part of its third-quarter earnings announcement.

IBM won the JPMorgan deal, originally worth $5 billion, in 2002, thus eclipsing its $4 billion contract with American Express as its largest outsourcing deal.

The key driver for such contracts is IBM's on-demand computing vision, part of the company's strategy for providing "pay as you go" computing services and IT infrastructure to corporate customers.

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