IBM has won a contract with a Pennsylvania health care system to develop new patient care technologies, which combined with two services deal renewals this week may point to a revival in this part of its business.
International Business Machines Corp of Armonk, New York, the world’s largest supplier of computer services, said it had agreed to an 8-year, $402 million deal with the regional University of Pittsburgh Medical Center.
While a far cry from the multi-billion-dollar-a-deal days of the 1990s, it marks IBM’s progress in shoring up its services business after a sudden drop in short-term contract signings dragged down its first quarter results.
IBM’s Global Services unit, a $46 billion-a-year business, announced just 14 contracts worth $100 million in the first quarter, with its largest deal worth $325 million, according to a report by analyst Toni Sacconaghi of broker Sanford C. Bernstein.
IDC analyst Alexander Motsenigos said the services sector was abuzz with a variety of possible deals that should lead to more contracts for IBM and its rivals during the second quarter.
In IBM’s case, this will be a combination of spillover from uncompleted deals in the first quarter and new signings.
“We have seen the average size of the mega-deal decline,” as the industry moves toward more discreet contracts in which multiple competing consultants may supply a piece of any overall contract for big corporate customers, Motsenigos said.
“Yet the average size of deals under a billion actually went up in 2004,” said Motsenigos, who manages computer services contract analysis and performance assessment for IDC.
More mega-billion deals may be in play, especially in energy, spurred on by 2004’s $3.5 billion contract award by TXU Corp. to France’s Capgemini, he said.
Three multi-year services deals
Earlier this week, U.S. retailer Pathmark Stores Inc. awarded IBM a seven-year technology services contract extension and expanded deal that carries an estimated $175 million value.
IBM also struck a renewal deal with National Account Service Co. on Tuesday -- a five year contract that builds on an existing 10-year technology services deal to provide health claims processing for millions of U.S. Blue Cross and Blue Shield life insurance customers.
Under the current contract, signed in 2000, NASCO said it had cut the amount of time needed to handle nightly batch processing of new claims to three hours.
Motsenigos estimated the NASCO extension was worth $200 million on top of the original $450 million it agreed to pay IBM in 2000.
IBM said the University of Pittsburg Medical Center deal aimed to create a regional health care system that can dramatically boost patient care and the diagnosis of illness.
UMPC scientists and physicians will team up with IBM to develop new technologies and organizational approaches to pressing medical challenges.
Among the projects to be developed are a patient record system that can be shared across a network of hospitals while ensuring patient privacy. Doctors and other medical personnel will be able to locate relevant treatment data via a global system while the public can be notified in emergencies.
The effort will include use of wireless handheld computers, radio ID tags, monitoring devices in treatment and patient rooms, as well as tools for coping with large-scale epidemics or even human-initiated biological attacks, IBM said.
