A Sweet Deal For IBM

While U.S. businesses may still need a little encouragement to get them to spring for new IT equipment, the situation overseas seems sweeter: Nestlé SA signed a five-year, $500 million deal Wednesday with IBM to build a global IT infrastructure for the Vevey, Switzerland, food and beverage company.

As part of a worldwide business process standardization effort, Nestlé is implementing mySAP.com enterprise software and consolidating IT operations at 100 regional locations in five data centers in Australia, Germany, Switzerland, and the United States. IBM is stocking the new centers with its RISC and Intel-based eServers, enterprise storage servers, and storage area networks. The systems will run DB2 database software and Tivoli systems-management software. Nestlé will run the data centers itself. The company expects to realize $1.8 billion in savings by 2006 through the consolidation of its facilities and standardization of its business processes.

"This deal is a good indication of what consumer products and retailer players will be doing--IT overhauls that allow improvements to business processes," senior Gartner analyst Jeff Roster says. Roster says that other big players in the consumer-goods and retail markets will follow Nestlé's lead in coming months, which could only further help the high-tech industry out of its doldrums. "If you're a Nestlé competitor, you want your IT shop to be as good as Nestlé's IT shop; you want your systems to be as competitive as Nestlé's," he says.

For IBM, the deal is significant not only because of its size, but also because much of the contract's value reflects the purchase of IBM hardware and software. Typically such large deals are outsourcing arrangements.