IBM Norway trades services for hefty contract

IBM is selling its outsourcing business for local governments and small and medium-sized businesses (SMB) in Norway, calling it...

IBM is selling its outsourcing business for local governments and small and medium-sized businesses (SMB) in Norway, calling it part of an overall strategy to focus on larger outsourcing customers and consolidate its operations in Europe.

In addition to the outsourcing business, IBM is selling a controlling interest in Danish IT provider Kommunedata and an operation centre at Hamar to Oslo-based EDB Business Partner for 468 million kroner (£39.5m).

The business being transferred generates annual revenue of about 500 million kroner, employs about 265 people and serves 300 Norwegian municipalities and major public registries and 45 companies, according to EDB.

In a separate agreement, EDB and its majority share owner, telecom group Telenor, have chosen IBM as their main provider of hardware, software and services for an upcoming technology consolidation in a deal valued at about 2 billion kroner over five years.

IBM's move to shed its relatively low-revenue producing outsourcing business in Norway, while picking up a heavy contract for products and services, was seen as a clever move by some analysts. The agreements show that IBM is "a wily fox that knows how to get deals," Ovum analyst Johan Hallberg wrote in a recent report.

He speculated that the move could mark a new tactic from IBM to sell additional services and products, figuring that even if it cedes some customers to EDB now, it could get them back later if it decided to buy the local service provider from Telenor.

Such an acquisition would not be a first for IBM. In August, the company announced it was buying Danish IT services companies Maersk Data and DMdata, while making a side agreement to become the main IT services provider for DMdata shareholder Danske Bank.

Under the deal, IBM also extended a services agreement with Maersk Data's parent company, shipping firm A.P. Moller – Maersk Group.

Big Blue's moves in the region significantly change the landscape of the Nordic IT services market, Hallberg wrote.

IBM Norway communications director Per Vassbotn framed the deals with EDB as part of a larger, worldwide strategy.

"IBM strategy worldwide is to go for big players and not the small companies and municipalities in Norway," Vassbotn said. Norway, with a population of around 4.5 million, has very few large companies, which usually don't outsource, he said. What's more, many of the customers being transferred have application needs, and IBM is focused on middleware, Vassbotn said.

IBM Nordic managing director Jens Munch-Hansen said the move was part of a strategy throughout Europe to consolidate IBM's operations to fewer and larger units.

IBM obtained the Norwegian municipalities as customers when it acquired Norwegian services provider NIT some 10 years ago, Vassbotn said, and since then its focus has changed.

Customers affected by the EDB buy should not expect any problems from the transfer, according to Vassbotn. "In fact they will get better service from a business partner specialising in the SMB niche, and in applications," he said.

Ovum analyst Hallberg agreed. "IBM's strategy to consolidate is good because smaller companies prefer to go to local providers because it's easier to get attention than it is from global players," he said.

The transfer to EDB is expected to be completed in December pending regulatory approval. EDB said it expects to see a three-fold increase in public sector revenue from the acquisition, making it an established provider in that segment of the market.

Scarlet Pruitt writes for IDG News Service

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