MCN Direct Newswire

Vol. 3 No. 32, 20 September 2004

This issue is sponsored by:

Sage, iGrafx and Exel

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This issue news

1. IBM loses $5bn outsourcing deal
2. EDS hits another hurdle
3. Parity pushes profit above parapet
4. Contractor market shows upturn
5. Detica adds new string to bow
6. Further information - feedback/pass on to a colleague/remove from mailing list

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1. IBM LOSES $5bn OUTSOURCING DEAL

Financial services firm JP Morgan Chase has scrapped a $5 billion outsourcing contract with IBM, dealing the supplier a heavy blow in a year when it expected outsourcing to be its main growth opportunity.

The seven-year agreement, first signed in 2002, was the world's largest financial services outsourcing contract.

JP Morgan Chase cancelled the deal after a review that concluded it would be preferable to keep IT inhouse. The change of heart means 4,000 IBM employees and contractors supporting the account will be transferred back to JP Morgan Chase from January 2005.

The financial firm said its original decision to outsource was the right one at the time, but it has since merged with Bank One, whose ex-chief executive and CIO are firm believers in keeping IT inhouse.

Austin Adams, CIO at Bank One and now CIO at the enlarged JP Morgan Chase, said: "After a rigorous review, the merged firm concluded it has the significant scale, enhanced capabilities, tools and processes to build its own global infrastructure and services organisation. We believe managing our own technology infrastructure is best for the long-term growth and success of our company as well as for our shareholders."

With little choice but to support JP Morgan Chase's decision, IBM said the company remained a 'significant client' to which it would continue to deliver technology infrastructure services.

In an effort to remain upbeat, IBM also said the contract cancellation would improve earnings per share next year as it was in the early and expensive stages of implementing the outsourcing arrangement. The downside is a loss of revenue and income over the longer term, and an indication that other financial services firms with major outsourcing contracts may reconsider their relationships.

2. EDS HITS ANOTHER HURDLE

EDS has run into further financial difficulties as a result of one of its clients, US Airways, filing for bankruptcy. EDS said in a regulatory statement that it is owed $27 million (£15 million) in receivables and work in progress by US Airways, as well as $16 million in other assets.

The shortfall is expected to take a toll on third-quarter earnings, with EDS suggesting provisions against contracts with the airline will cost up to 3 cents a share. EDS had forecast earnings per share of 5-10 cents for the quarter to the end of September.

The impact of US Airways' crash will be significant as EDS struggles to persuade the market and shareholders that it can achieve a financial turnaround and return to profitable growth. The company recently said it would cut 20,000 jobs and continue its effort to reduce costs as part of the transformation plan (MCN Direct 3-31).

On the upside, EDS has been awarded a $34 million, seven-year subcontract from Sytel to support the US Department of Homeland Security's Bureau of Citizenship and Immigration Services Office of Records Services. This is EDS' fifth win with Sytel, bringing their total awards from the Department of Homeland Security to $128 million.

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3. PARITY PUSHES PROFIT ABOVE PARAPET

IT services group Parity has reported a slither of profit for the six months to 30 June, reversing three years of losses.

At the interim, Parity showed a pre-tax profit of £14,000, compared to a loss of £13.8 million a year ago when it took a major charge against the closure of its Dutch subsidiary. Turnover in the six months rose 14.5% to £90.3 million.

Revenue from the company's Business Solutions IT consultancy operation was flat at £11.7 million, but operating profit rose 52% to £914,000 on the strength of a higher utilisation rate and Parity's strategy of chasing profitable contracts.

Its recruitment business also performed well, but revenue from training slipped. In geographic terms, both mainland Europe and the Americas showed a fall in revenue but an increase in operating profit.

Parity CEO Ian Miller said: "Parts of our market are clearly improving while others are still proving slow to recover. Business Solutions continues to improve utilisation and profitability by focusing on those sales opportunities that play to its strengths."

But having struggled back to profitability, Parity's future remains uncertain. Miller noted that despite being the UK market leader in training, Parity has not yet seen the normal seasonal uplift in the order book for the last four months of the year.

Sponsor

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4. CONTRACTOR MARKET SHOWS UPTURN

The market for freelance consultants is improving, according to the Professional Contractors Group (PCG), whose 11,700 memebers are mainly IT and management consultants.

A PCG member survey carried out in May and June found that 81% of respondents were working on contracts during the research period, up from 77% the previous year.

The PCG said the statistics confirm the view that the contractor market is improving, but consultants still face significant work issues. Those responding to the survey said taxation and changes in legislation were their main concerns, followed by problems associated with finding new business, the economic environment, updating skills and marketing their businesses.

The PCG said it was tackling their worries over the Government's potentially punitive tax regulations IR35 and Section 660A through debate with Government and legal test cases.

PCG chairman Simon Juden said: "We believe that freelance consultants have an important role to play and make a valuable contribution to the UK economy, and that they should be taxed fairly and in a transparent and easily administered fashion."

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5. DETICA ADDS NEW STRING TO BOW

IT consultancy Detica has diversified into the products market through the launch of a subsidiary, StreamShield Networks, offering tools for securing internet content.

StreamShield's technology is a by-product of Detica's expertise in national security consultancy and information management. It will be available as a hardware-based networking product for internet service providers or as a managed service offered by service providers to business customers.

StreamShield claims that by deploying its technology within service providers' networks rather than following the fashion of deploying security products on customer premises, it can process network traffic 100 times faster than existing technologies.

Commenting on the new subsidiary, Detica CEO and chairman of StreamShield Tom Black said: "Initial discussions with UK corporates, network operators and internet service providers have been encouraging, but we believe that caution is required when trying to predict the growth profile of this very early stage business. In the year ending 31 March 2006, we expect StreamShield to generate modest revenues. The board expects StreamShield to move into profit thereafter."

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