IBM, HP shortlisted for Microsoft's $700 Million IT deal

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IBM, HP shortlisted for Microsoft's $700 Million IT deal
Bangalore: Technology firms IBM and Hewlett Packard (HP) have been shortlisted for around $700 million contract for managing Microsoft's global network of desktops, servers and other IT infrastructure. This deal comes at a time when the software maker seeks to lower its operational costs and focus better on its core business.

India's top outsourcing vendors had also bid for this contract, but they lost out to the multinational rivals who have better global footprints and are even ready to take over assets including Microsoft's staff, reports The Economic Times. "This was one contract where most of us were bidding hard, especially given the kind of customer we are talking about, but global service providers seem to have taken a lead," said a Senior Executive at one of the tech firms involved during early stage of bidding. Another person based in U.S., and familiar with this contract said that Microsoft had issued a global request for proposal (RFP) few months ago for this contract.

The global IT infrastructure market has been growing exponentially over the past few years. The top 15 vendors analyzed by research firm Forrester in a recent report provided remote and onsite services for about 16.7 million desktops, 1.7 million servers and 23.4 million users globally. These vendors, including IBM, HP-EDS, CSC and some Indian tech firms delivered $83.9 billion worth of infrastructure services last year. "Some clients clearly will require the scope only an IBM or HP can deliver, but many don't," said Dr. Paul Roehrig, Principal Analyst at Forrester Research.

On their part, Indian tech firms such as Tata Consultancy Services (TCS), Infosys and Wipro have made substantial progress in gaining market share when it comes to application development, maintenance and back office outsourcing. However outsourcing of computer hardware maintenance is an area where multinational rivals still lead. "In areas where infrastructure can be managed remotely, Indian vendors are as good as anybody else. However there are certain pieces of infrastructure management such as end user computing where they do not have enough global resources," said Siddtharth Pai, Managing Director of outsourcing advisory firm TPI India.

When HCL recently won over $350 million infrastructure deal from Reader's Digest Association in March this year, it involved remote management of the publisher's desktops and servers. Apart from having substantial onshore resources, some infrastructure outsourcing contracts also involve financing , which is readily offered by vendors such as IBM and HP.

India's pure software vendors do not have hardware products to be bundled with such contracts. Moreover, because of asset transfer, most infrastructure deals offer lower operating margins when compared with application development and maintenance contracts. "In a $500 million contract involving only people, the margins can be $100 million, but when it includes asset transfer, the margins can hit $55 million," Pai added.

While lower margins may be making it less attractive for Indian firms to pursue large, infrastructure outsourcing contract, they are ready to execute projects involving remote delivery, which helps them retain their margins. Although dwarfed in size by the legacy global service provider firms, "India - centric firms - including Cognizant, HCL, Infosys, and TCS - also landed among the leaders by showing good delivery capability and generally strong forward looking strategies for the global infrastructure services business," Roehrig of Forrester added.

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