IBM signs 10-year IT outsourcing agreement with Innovation Auto Risk

NEW DELHI: IBM on Monday signed a 10-year information technology (IT) outsourcing agreement with Innovation Auto Risk, an established leader in the Indian market providing claims management services and other related solutions to insurers & fleet management companies.

As part of the agreement, IBM will deploy server, storage, networking and security IT infrastructure to be hosted at a data center in Delhi. IBM will provide 24x7 onsite infrastructure monitoring services from an onsite command centre. In addition, IBM will provide managed services and ongoing project management for infrastructure procurement, commissioning and configuration, as well as hardware refreshes after five years.

IBM put together a customized end-to-end managed services package and introduced Innovation Auto Risk to an operating-expense driven model, rather than capital-expense driven model. This allowed the company to pay IBM as-it-grows its business operations thus removing the need for large capital influx to sustain its growth and expansion. This agreement aims to reduce Innovation Auto Risk’s capital expenditure on IT by 25%.

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IBM signs 10-year IT outsourcing agreement with Innovation Auto Risk

NEW DELHI: IBM on Monday signed a 10-year information technology (IT) outsourcing agreement with Innovation Auto Risk, an established leader in the Indian market providing claims management services and other related solutions to insurers & fleet management companies.

As part of the agreement, IBM will deploy server, storage, networking and security IT infrastructure to be hosted at a data center in Delhi. IBM will provide 24x7 onsite infrastructure monitoring services from an onsite command centre. In addition, IBM will provide managed services and ongoing project management for infrastructure procurement, commissioning and configuration, as well as hardware refreshes after five years.

IBM put together a customized end-to-end managed services package and introduced Innovation Auto Risk to an operating-expense driven model, rather than capital-expense driven model. This allowed the company to pay IBM as-it-grows its business operations thus removing the need for large capital influx to sustain its growth and expansion. This agreement aims to reduce Innovation Auto Risk’s capital expenditure on IT by 25%.

“Innovation Auto Risk needed to build a robust infrastructure to address the growing claims processing requirements of their customers and we were able to provide this using a unique model that helped them grow without the headaches of managing their back-end and the need for huge capital requirements,” said Jyothi Satyanathan, Country Manager, ibm.com, IBM India/South Asia remarked,

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HP could prune outsourcing services: Sources

NEW YORK: Hewlett-Packard Co is considering selling or shutting parts of its outsourcing business to focus on the higher-margin areas of its technology services offering, people familiar with the matter said. A year after buying Electronic Data Systems for $13 billion, HP executives are discussing the possibility of divesting parts of the outsourcing operations, especially in its business process outsourcing (BPO) arm, sources told Reuters.

"The calculation is, can we get more cash for this asset now versus the cash flow the asset is expected to generate in coming years?" said one of the sources who is familiar with HP's plans. HP's India operations or its human resources BPO unit could be among the businesses divested, the source added. Housed within HP's services division, the BPO unit posted $709 million in revenue in the quarter ended April 30, compared with $40 million a year ago.

HP got most of its technology outsourcing and BPO business from EDS, a pioneer in the field, which it bought in August 2008. HP may decide not to sell anything if the assets fail to fetch a good price, the sources said. If the assets were to be shopped, outsourcers like TeleTech and Stream Global Services could be interested, a second source said. HP is expected to issue its fiscal third quarter results later on Tuesday.

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Infosys deal: Expect no value change in short term

The acquisition of US-based BPO firm McCamish Systems will boost Infosys’s capability building exercise more than its financial strength in the near term. Business process outsourcing (BPO) operations constitute just 6% of Infy’s total revenue. Hence, its latest shopping will not have any significant impact on future performance, apart from marginally impacting its net margin.

In 2008, McCamish had reported $38.2 million in revenue compared with Infy’s $4.7 billion. Infy’s BPO unit, Infosys BPO, has reported a revenue of $274 million in the past four quarters. According to the management, the current revenue run rate of McCamish is close to $27 million, which is lower than that in 2008 due to the US recession.

Given the current revenue, Infy’s BPO would be able to augment its revenue base by at least 10%.

The $38-million deal may go up by another $20 million, if McCamish meets certain operating targets in future. If these conditions are met, then Infosys BPO would pay nearly 1.5 times McCamish’s 2008 sales.

It is difficult to measure the valuation in terms of operating income since McCamish had ended 2008 in operating losses due to tough business conditions in the US financial and insurance sector. According to Infosys BPO CEO and MD Amitabh Chaudhry, MCCamish has historically operated at operating margin of 15%. The deal value is about seven times operating income, which is in line with the industry trend.

The deal will reduce Infosys’s Rs 12,273 crore strong cash base by a tad Rs 300 crore. Considering an average return of 8% on this amount, which Infosys will have to forgo, after it pays for the deal, its net margin is likely to drop by 30-40 basis points from the current 27.6%.

Infosys would not carry on its balance sheet any accumulated losses of McCamish, according to Abraham Mathews, CFO of BPO operations. This is because, McCamish follows a pass-through taxation system wherein incomes and losses are passed through to the partners of the company. Though minuscule, the acquisition is of strategic significance.

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