American Express, IBM Ink $4B Tech Service Deal
{{#rendered}} {{/rendered}}American Express Co. on Monday said it signed a $4 billion, seven-year technological services agreement with computer giant International Business Machines Corp. aimed at saving the global financial services firm hundreds of millions of dollars.
New York-based American Express, known for its travelers checks and signature green and gold charge cards, said IBM will take over managing some technology services, offering posts to about 2,000 of its employees.
The agreement includes data center processing for American Express' more than 1 billion daily transactions, hosting the company's Web site, network servers, data storage and help desk support.
{{#rendered}} {{/rendered}}IBM Global Services accounted for about 40 percent of its parent's revenue in the fourth quarter of 2001 and in recent years has been the No. 1 growth driver for the computer maker. In the fourth quarter, however, the company said services revenue declined 1 percent due to the economic slowdown.
That slowdown has weighed on IBM's stock as analysts question how the company will improve its revenue growth in 2002. IBM Chief Operating Officer Samuel Palmisano, a former services head, will take over for Chief Executive Louis Gerstner on Thursday.
The American Express agreement is IBM's largest and based on the "on-demand" services model introduced in the fall of 2000, in which a company's monthly payments vary as its need for computing expands and contracts.
{{#rendered}} {{/rendered}}IBM said that means that if American Express needs more computing power because of increased financial transactions, for instance, IBM can respond by tapping into computers in one of its locations.
"In the utility environment, if for one hour I need more capacity and I don't the next hour, I don't pay for it, whereas in a traditional arrangement typically you'd say 'we're going to need more so sign me up for "X" amount more for a period of time,"' said Ginni Rometty, general manager for IBM Global Services for the Americas.
Rometty said the $4 billion figure is the minimum American Express expects to spend during seven years.
{{#rendered}} {{/rendered}}"They outsource the heavy lifting to IBM but this is really new. Pay as you go ... is the future of services in this country," said Sam Albert of Sam Albert Associates, a consultancy in Scarsdale, New York.
U.S. operations, which account for about 75 percent of the 2,000 positions, should start transferring to the new systems in March, and international ones in May, American Express said.
An American Express spokeswoman said less than 20 American Express jobs would be cut in relation to the change.