Williams-Sonoma Nixes IBM Outsourcing Deal, Brings IT In House

Williams-Sonoma Inc. is canceling the bulk of a five-year, multi-million dollar technology outsourcing contract with IBM less than three years into the deal and is handing its IT operations back to in-house staffers, according to a regulatory document that the home furnishings retailer filed on Friday. "We will assume responsibility for the operation of portions of our data center information technology infrastructure that IBM had operated previously," said Williams-Sonoma, in a filing with the Securities and Exchange Commission.

"All infrastructure that IBM had operated at our facilities will be transitioned to our control," the filing continued. In the document, Williams-Sonoma said that "IBM will continue to operate a portion of our infrastructure at IBM's facilities for the remainder of the term of the services agreement" but added that it no longer considers the deal to be "materially significant" financially.

Williams-Sonoma did not state why it was amending the contract. Representatives for the retailer and IBM were not immediately available for comment.

Williams-Sonoma originally inked the outsourcing deal with IBM in September, 2004 "to support the growing complexity of our information technology infrastructure," according to an SEC document that the retailer filed at the time. The agreement was slated to run through 2009.

According to another Williams-Sonoma filing, dated January 2005, the retailer estimated that it would pay IBM a minimum of about $21 million through the life of the contract, with additional payments based on variables like CPU hours used and storage consumption. The filing also revealed that the deal contained a graduated termination fee not to exceed $9 million.

The January 2005 filing indicated that the agreement could be terminated at any time for cause and for convenience after 24 months from signing.

Williams-Sonoma has been under financial pressure of late. In May, the company reported a 21% drop in first quarter profit and reduced its second quarter earnings forecast, citing fears of increased price competition from rivals. The company operates the Williams-Sonoma branded retail outlets, as well as the Pottery Barn and West Elm chains.