HP-CIBC: that big a deal?

Hewlett-Packard Co. (HP) is crowing about a recent $2 billion outsourcing agreement with the Canadian Imperial Bank of Commerce (CIBC), but some industry observers say there is more to the deal than meets the eye.

HP and Toronto-based CIBC in September announced a seven-year contract to provide comprehensive IT services valued at over $2 billion.

Under the agreement, HP will partly manage CIBC’s multi-vendor IT infrastructure – desktop PCs to mission-critical systems and software – including MVS and NonStop Himalaya systems, Unix, Windows NT and IBM AS/400 midrange servers and networking gear.

“HP’s outsourcing agreement with CIBC is a testament to our ability to provide mission-critical, multi-platform, high-availability IT infrastructure services,” said Ann Livermore, executive vice-president, HP Services.

“By outsourcing much of its IT infrastructure…CIBC and its customers will enjoy the benefits of secure, responsive and cost-effective IT systems,” said Carly Fiorina, HP chairman and CEO, in a prepared statement.

But according to Julie Giera, a New Hampshire-based research fellow with Giga Information Group Inc., the devil’s in the details.

HP didn’t just win business from CIBC; it also removed an albatross. HP purchased CIBC’s interest in Intria-HP Corp. (IHP), a Toronto IT infrastructure firm originally owned jointly by CIBC and HP.

“I think this was a bailout, frankly, HP taking Intria off CIBC’s hands,” Giera said. “Intria has been modestly successful. And that’s probably being kind.…I think as part of the (outsourcing) deal, CIBC naturally wanted out and made it a key decision factor.”

Did CIBC stipulate it would sign the contract only if HP agreed to buy the bank’s interest in IHP? HP’s spokeswoman Angela Rea in Toronto said, “We earned that through our work with the bank.”

CIBC’s spokeswoman Susan McDougall said, “No details of the sale of IHP to HP were disclosed. It’s CIBC’s policy not to comment on rumours and speculation.”

Dan McLean, director of outsourcing and IT utility research with IDC Canada Ltd. in Toronto, pointed out that the deal isn’t as big a win as the massive price tag suggests.

“Don’t let that one fool you. That’s a carry-over from an existing deal,” McLean said, noting how IHP was CIBC’s IT infrastructure consultant already. “It’s an acquisition that, oh by the way, comes with a $2 billion deal tied to it.”

So why is HP making such a big fuss? McLean said the CIBC agreement is HP’s first major win since it merged with Compaq Computer Corp. earlier this year.

According to Giera, the CIBC deal is “really important for HP,” because HP’s lack of big account wins post-merger had some people wondering if the Compaq deal was a bad move.

“I know several large companies held off making outsourcing decisions, waiting to see how well the HP-Compaq merger went. If anything, HP needed a deal like this, just to signal confidence in its combined services business,” said Giera.

McLean said full ownership of IHP might aid HP’s drive for success.

“Now that Intria is fully aligned with HP, does that make potential outsourcing customers more comfortable with the idea of looking to Intria as an outsourcing provider? When it was aligned with CIBC, maybe the mindset was, ‘Hmm…maybe we don’t want to do business with these guys. They’re owned by our competitors.'”

It’s not as if HP will turn out to be the wunderkind of outsourcing overnight, McLean said, saying that that the company’s services platform is shaky.

“There are still a few pieces missing,” he said. For instance, HP has little to offer clients seeking high-end services, such as “IT consulting or integration – perhaps more from the business process and the applications side.”

Giera said HP must provide application outsourcing to complete the puzzle.

“They need a deal that includes application management that sends a signal to the rest of the marketplace that…customers are choosing them for that kind of work, as opposed to the expected infrastructure management.”

That the CIBC announcement concerns a Canadian company is important, Giera said. It proves to potential customers that HP is a viable choice for IT services outside the U.S.