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IBM/Morgan Deal Shares the Wealth

Light Reading
News Analysis
Light Reading
12/31/2002

The $5 billion outsourcing contract between IBM Global Services and J.P. Morgan Chase Bank & Co. could lead to some choice business for telecom and optical networking companies (see IBM Scores $5B Deal With JP Morgan). The seven-year deal contained only a passing mention of data and voice services, but it was enough to raise hopes amongst equipment vendors.

IBM's announcement is similar to other high-profile, enterprise outsourcing deals (see Mega Outsourcing on the Rebound: IBM Signs $4 Billion Contract with American Express). On December 13, Electronic Data Systems Corp. (EDS) announced a $4.5 billion, ten-year agreement to outsource services to Bank of America Corp. in what may yield business for several gear makers (see EDS's $4.5B Optical Bandwagon ).

IBM's deal is part of a new series of projects that involve "on-demand" or "utility" computing, whereby bandwidth and services are metered and paid for when used. The approach calls for an infrastructure that blends high-bandwidth networking with sophisticated information and storage management tools, all of which IBM has been working on with various partners.

Who are these lucky partners? Neither IBM nor J.P. Morgan Chase will say, but a contract this size will probably involve subcontractors and technologies from a slew of companies. There may even be new RFPs (requests for proposals) issued that supersede longstanding arrangements.

A scan of IBM's past announcements shows it has worked on utility computing and bank outsourcing with a range of suppliers for a long time. Here are some vendors that will likely see business from the new contract:

  • Cisco Systems Inc. (Nasdaq: CSCO). The router giant has a project in place with IBM called the "Cisco and IBM Branch Transformation Solution," in which banks use Cisco gear, including its IP telephony equipment, to run services at branch offices (see Cisco Gets Deeper With IBM). The two already claim to have implemented Branch Transformation in major banks. Cisco had no comment on its possible involvement in the J.P. Morgan Chase deal at press time.

  • AT&T Corp. (NYSE: T) and Qwest Communications International Inc. (NYSE: Q). AT&T supplies numerous networking services to IBM Global Services, thanks to a previous agreement. AT&T also has a relationship with J.P. Morgan Chase and says it doesn't anticipate that IBM's outsourcing will affect that arrangement.

    Qwest has its own multiyear relationship with J.P. Morgan Chase (see JP Morgan Hires Qwest). Further, it's interested in grid computing, a key element of IBM's "on-demand" strategy (see The Grid Gets a Telecom Twist). At press time, Qwest didn't have anything to say on the possibility of involvement.

  • Various storage networking vendors. Utility computing involves storage-area networking, and vendors such as Network Appliance Inc. (Nasdaq: NTAP) have already worked with IBM Global Services in other banks (see Deutsche Telekom Takes CDN to the Next Level). Another vendor, Inkra Networks, which makes data center switches used in SANs, also has a partnership with IBM for on-demand computing solutions (see Inkra Scores With IBM). SAN supplier 3PARdata Inc. also boasts IBM Global Services as a customer (see 3PAR Drives Hard).

  • Selected telecom startups. In a December 1, 2002, ress release, IBM says telecom carriers are key to its on-demand services strategy. In that release, Big Blue says it's working with venture firms 3i Group plc, Mayfield, and WorldView Technology Partners to identify startups that have technologies IBM can use in this effort. The release cites Intelliden Corp., a part of 3i's portfolio that makes software for managing telecom equipment (see Intelliden Launches) and Convedia, a startup backed by Mayfield that makes media servers for carriers and was part of a service-creation confab at Supercomm 2002 (see Big Firms Launch Service Creation Group).

— Mary Jander, Senior Editor, Light Reading
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willywilson
willywilson
12/4/2012 | 9:05:44 PM
re: IBM/Morgan Deal Shares the Wealth
Hey Light Reading, how about doing something really uncharacteristic for the trade press? Ask some tough questions, such as:

- Do any of the parties have investments in each others' equity or debt?

- Do any of the senior executives who work for any of these companies have investments in each others' equity or debt?

- Are there any VC's in common among the firms, and do the principals of any of those firms have an interest?

I seem to remember a joint press release from a "free space optics" carrier (TeraBeam) and a major investment bank (Merrill Lynch) right after Sept. 11th that praised the carrier for restoring Internet service by shooting infrared laser beams across the Hudson River. Hey, maybe it really happened, but it might have been a better story if we'd been prominently informed that Merrill Lynch had a big direct investment in TeraBeam.

Inquiring minds want to know!
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