Circuit City To Cut 3,400 Workers, Outsource Tech To IBM

IBM said Wednesday that it has won a $775 million deal to help Circuit City revamp and manage its key business systems as the electronics retailer looks to cut costs across its operations.

Under the seven-year contract, IBM will provide Circuit City with a range of information technology services, including data center management, help desk operations, network management, desktop support and security administration.

The agreement covers more than 600 Circuit City stores and 43,000 employees across the U.S.

Circuit City estimates that the outsourcing deal will allow it to cut IT costs by 16%. It plans to transfer 50 of its 130 internal IT workers to IBM, while the remainder will be assigned to what it's calling a "short-term team" tasked with supporting the transition.

The outsourcing initiative is part of a broader restructuring program at Circuit City under which the company is cutting 3,400 workers who it said were paid "well above the market-based salary range for their role." In a statement, the company said it would replace those employees with lower paid workers.

Circuit City also said it plans to close 60 stores located outside the United States this year. In its most recent third quarter, Circuit City posted a loss of $16 million.

In February, Circuit City rival CompUSA announced a plan to close 126 stores in the United States.