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IBM Posts 16% Gain In Outsourcing Sales

Going forward, IBM's global services unit will face stiff competition from HP, which plans to acquire EDS, and fast-growing Indian outsourcers like Wipro.
IBM's key global services outsourcing and consulting unit, which accounts for more than half the company's total revenue, posted strong growth in the second quarter as sales increased 16% year over year to $15.2 billion, IBM reported Thursday.

IBM said its Global Technology Services outsourcing group saw sales increase 15% to $10.1 billion, while sales at its Global Business Services consulting 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 drove of intellectual property.

"IBM executes better against competitors both from the U.S. and offshore," said Lehman Brothers analyst Ben Reitzes, in a research note published Friday.

Still, the company will face stiff competition going forward. Hewlett-Packard recently strengthened its services unit by announcing plans to acquire Dallas-based EDS for $13.9 billion. The deal would give HP a total services complement of about 210,000 workers -- roughly the same head count as IBM's services unit.

IBM also faces competition from fast-growing outsourcers based in India. Hard-charging Wipro Technologies, for instance, increased revenue 43% year over year in its most recent quarter.

Overall demand for technology outsourcing services remains strong. The value of all contracts signed in the first six months of 2008 totaled $49 billion, up 24% from the comparable period a year ago, according to market watcher TPI.

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