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8/22/2008
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Health Net Outsources Tech Operations To IBM

The $300 million deal covers data center management, security services, and help desk support.

IBM said Thursday that it won a $300 million deal to provide tech services to Medicare plan provider Health Net.

Under the five-year arrangement, IBM will manage Health Net's IT infrastructure and provide data center services, security management, and help desk and desk-side support. IBM partner AT&T will provide network, voice, and data management services, according to IBM.

Health Net officials said the deal will help the publicly listed company reduce its technology costs. "This is an important step in making Health Net more competitive and is a key component of our operations strategy to increase our capabilities while reducing administrative costs and improving efficiency," said Health Net COO James Woys, in a statement.

The contract is the latest sign that IBM is maintaining strength in its key services businesses despite the economic downturn and increased competition from offshore providers.

The company's Global Services outsourcing and consulting unit, which accounts for more than half of total revenue, posted strong growth in the second quarter as sales increased 16% year over-year to $15.2 billion, IBM reported last month.

IBM said its Global Technology Services outsourcing group saw sales increase 15% to $10.1 billion, while sales at its Global Business Services consulting-led group rose 18% to $5.1 billion.

The value of services contracts signed in the quarter totaled $14.7 billion, up 12% from the previous year, IBM said. The company's backlog of services contracts, as of the end of the second quarter, is worth about $117 billion, $1 billion more than at the same time a year ago.

IBM's services group appears to be benefiting from a strategic change implemented two years ago, under which it moved from providing time-consuming and expensive custom work to offering more standardized services that can be deployed quickly and which draw from IBM's vast trove of intellectually property.

Shares of IBM were up 0.15% to $123.18 in early trading Friday.

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