With a new services deal announced Tuesday, Hewlett-Packard (Quote) is showing it can do more than just make computers and printers.
The Palo Alto, Calif., firm said its has renewed and expanded its contract with Nokia (Quote). Financial terms were not disclosed, but the deal is estimated to be worth $400 million.
Under the agreement, HP will manage the IT infrastructure and operations for the Finnish cell phone giant at all of its
locations. The new agreement tacks on an additional five years to the companies' existing three-year relationship. The new contract should be finalized sometime later this year.
The partnership is by no means exclusive. Last month, Nokia inked an outsourcing contract with IBM (Quote) worth an estimated $248 million. That five-year contract allows Big Blue to manage Nokia's help desk and desktop IT operations.
Unlike its original $185 million deal forged back in September 2001, HP's extended agreement means it becomes Nokia's IT department in a service-based model following on HP's Adaptive Enterprise strategy. In addition to managing the servers, HP will enable billing based on actual IT service consumption and different support requirements by Nokia's businesses.
"It's similar to how an electric company bills its customers," HP services strategy director Patrick Adamiak told internetnews.com. "Typically companies pay based on a per-year fee. Nokia will pay us by the amount of IT services being used by them, their customers or their partners."
The Services division, which boasts 65,000 employees serving 168 countries has previously scored more than $1 billion in major new contracts in the last year and a half from clients such as Novell, Land O'Lakes, the
U.S. Postal Service. IT also tallied a $600 million contract with the Bank of Ireland.
"HP has been very successful getting themselves to the table for these mega-deals, one has only to look at the P&G deal and the deal with the Bank of Ireland for evidence of that," Forrester Research vice president and research fellow Julie Giera told internetnews.com. "They are building a reputation for being able to capably manage the large, international data center."
Giera said much of the push comes from the top.
"CEO Carly Fiorina and Ann Livermore decided that HP Services should be competing for 'Mega-deals' -- those multi-hundred million dollar/billion dollar outsourcing deals," she said. "Up until this point, because HP did
not have a robust applications practice and their infrastructure outsourcing practice was predominately managing HP equipment, HP was naturally excluded from many of the big deals."
Now HP's Services division competes heavily for IT services contracts against top-tier players like IBM, Electronic Data Systems (Quote) and Sun Microsystems (Quote).
Over the past 18 months, HP has aggressively gone after mega-deals, improving their capabilities to manage any vendor's hardware. The company has attempted to "move up the stack" Giera said, by growing their
applications knowledge and by leveraging companies like Digital India -- a
small India-based applications outsourcer owned by Compaq that came over
with the acquisition. Adamiak said there was no connection between Digital
India and the Nokia deal.
The location aspect is important because Giera said companies focus on a
"nearshore" option, where computing is moved to a country close to the
customer, but less expensive than their home country. In the case of
Finland-based Nokia, India is closer than say, the United States.
"Expect more outsourcers to follow suit," Giera said. "Since the offshore
firms do not have the capability to buy hardware and manage infrastructures,
nor do they have the experience to hire and assimilate their customers
personnel, this model -- while successful in the short term -- may exclude
the offshore firms from doing business on a larger scale. Big companies
outsource big and want service providers that can support that."
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