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IBM Shrinks Suppliers: Round Two

IBM has been offering lower margins in return for higher volumes to its staff augmentation contractors, a move that has caused some to leave the business.

Keane Inc. last month dropped its staff augmentation work at IBM, citing a recent change in IBM’s direction. Another IT services provider, Ciber Inc., also plans to wind down its IBM staff augmentation business.

“IBM, in general, has decided to try to do more revenue with fewer firms and do so with lower gross profit for the firms that remain,” said David Durham, senior vice president and chief financial officer at Ciber. “We chose not to pursue” the staffing aspect of IBM’s business.

He said Ciber continues to do business with other elements of IBM.

Overall, Ciber has been moving away from staffing work in recent years as it focuses instead on solution- or project-oriented work, Durham said.

IBM, he said, has “accelerated the process for us by asking for steep discounts on this existing revenue stream that we didn’t feel was appropriate to pursue.”

Analysts International, meanwhile, announced last month the award of a staff augmentation contract from IBM. CTG is another company remaining in IBM’s staffing mix.

CTG executives, during a recent earnings teleconference, said the company’s new staffing business with IBM has contributed to a longer cash cycle. The upside for CTG is volume, however.

“It’s a volume-driven contract,” according to James Boldt, CTG’s president and CEO. “We have picked up a significant amount of volume from it.”

Perot Systems posts Q2 gains.

Perot Systems Posts Q2 Gains

Perot Systems Corp. on Tuesday reported a 13 percent rise in revenue for its June-ended second quarter and, as it has in recent months, cited health care as one growth area.

The integration and outsourcing vendor generated $488 million in revenue in Q2, compared with $433.8 million last year. Net income soared 49 percent to $32.6 million, from $21.9 million in the year-earlier quarter. Diluted earnings per share increased 50 percent to $0.27 for the quarter compared with $0.18 last year.

Perot Systems officials reported that the company obtained new contract signings worth $348 million for the quarter. The total value of new contracts signed during the past 12 months now stands at $1.8 billion. Peter Altabef, Perot Systems’ president and CEO, said two-thirds of the new contract value includes deals with a “sizable embedded” systems implementation. Perot Systems was founded as an outsourcing vendor, but has since developed application capabilities in such areas as clinical systems.

Health care provides a sizable chunk of the company’s business and continues to generate work. In the past year, the company has signed new health care sector contracts valued at $1.2 billion, according to Altabef.

In the second quarter, the company’s health care revenue grew 15 percent over the previous year. But Altabef said that growth rate doesn’t represent the business sector’s full potential, since some contracts have yet to achieve their full revenue run rate.

EDS allies with Cognizant.

EDS Allies With Cognizant

Electronic Data Systems Corp. plans to bolster its offshore capability through an alliance with Cognizant Technology Solutions.

Cognizant, based in New Jersey, operates software development facilities in India. A spokesman for EDS said the company will tap Cognizant for application development and application maintenance. Cognizant, meanwhile, has alliances with Computer Sciences Corp. and IBM.

EDS’ Cognizant alliance is part of EDS’ transition to a global delivery model, according to the company. EDS is in the process of reorganizing its application delivery function into units that specialize in specific software platforms and that specialize in industry-specific solutions.

Keane’s Aussie Deal Now Official

The ink has dried on Keane Inc.’s contract with the Australian state of Victoria’s Transport Ticketing Authority.

Keane Australia Micropayment Consortium Pty Ltd. (Kamco), a Keane subsidiary, last month was selected in a two-bidder run-off to negotiate a contract with the Transport Ticketing Authority (TTA).

The deal was struck July 26, according to Keane’s recent filing with the Securities and Exchange Commission. The contract is valued at $367 million. But a few sticks come with this carrot.

The contract stipulates that TTA may terminate the pact for convenience at any time “and pay only for work completed, subject to certain termination fees,” according to the SEC document. In addition, TTA “may terminate the agreement for events of default, subject to Kamco’s right to cure.”

Termination for convenience and termination for default clauses are standard in government contracting.

Failure to perform may result in TTA assuming the role of prime contractor. During the contract’s two-year development phase, “liquidated damages of up to $50,000 AUD per day may be assessed for late delivery caused by Kamco or its subcontractors,” the SEC filing reported. The agreement also requires Kamco to provide security and performance bonds to the tune of $30 million AUD during the development phase and $15 million AUD for the balance of the contract, according to the document.

BearingPoint’s Hawaiian (Telecom) Punch.

BearingPoint’s Hawaiian (Telecom) Punch

BearingPoint Inc. has captured a five-year pact to develop, build and manage operations and business support systems at Hawaiian Telecom Communications Inc.

The contract will span front office, network and back office systems. Applications include finance, human resources, customer billing and relationship management.

Hawaiian Telecom began operating under that name on May 2. The company had been known as Verizon Hawaii.

BearingPoint’s teammates on the project include Oracle Corp. and Hewlett-Packard Co., which is providing primary and backup data center services as well as call center support.

Caxton-Iseman Closes Manchester Deal

Caxton-Iseman Capital Inc. has completed the acquisition of Manchester Technologies Inc., a transaction announced in April.

The deal is valued at $56 million. Going forward, the acquired company will operate as Electrograph Technology Corp. Electrograph, which distributes displays and projectors, had been a subsidiary of Manchester Technologies.