IBM wins Honeywell aerospace deal

Eric Auchard

NEW YORK: IBM has won a long-term contract from Honeywell worth several hundred million dollars, its largest military/aerospace engineering contract since IBM exited the field a decade ago.

The agreement between IBM's Engineering & Technology Services unit and Honeywell's military aerospace business covers electronics for aircraft, munitions, space and surface vehicles, the companies said in a statement.

The deal is designed to speed development of network-based battlefield gear, they said. Under the agreement, Honeywell gains access to IBM engineering expertise, technologies, research and advanced electronics manufacturing capacity.

"Companies that are very proud of their engineering competence are looking to IBM" for electronic design services, Robert Blackburn, vice president of military and aerospace engineering for IBM, said in a phone interview last week.

"Honeywell has outsourced their digital engineering function to IBM," Blackburn said. "This deal is not contingent on one program. It is to provide our information technology throughout their network(ed) product line," he said.

It represents the largest deal yet for International Business Machines Corp.'s nascent electronics engineering services business, Blackburn said. An IBM spokesman confirmed the deal with Honeywell was worth "several hundred million dollars" to IBM over the life of the 10-year contract.

The IBM unit previously has announced technology and engineering services deals with Raytheon Co., Boeing Co. and L-3 Communications Holdings Inc.

ELECTRONICS DESIGN AS A SERVICE

The push into the aerospace electronics market comes a decade after the computer maker sold off its Federal Systems Co. business to a predecessor of what is now L-3, in the wake of the Cold War. It was later sold to Lockheed Martin

The old IBM helped upgrade the B-52 fleet in the 1960s and 1970s from vacuum-tube technology to digital circuitry.

This time around, IBM aims to create a variant of the business process outsourcing (BPO) market. But instead of offering conventional business services like payroll-processing or human-resources services, IBM provides electronics design as a service.

"This takes IBM up a level," Bob Parker, an analyst with market research firm IDC Manufacturing Insights near Boston. "It takes advantage of what IBM is good at internally."

IBM is looking to turn its in-house electronics engineering staff into outsourced service providers as the company shifts its production capacity from a largely internal function for building its own computers into foundry capacity that builds chips for other companies' products such as video-game makers.

In recent years, the Armonk, New York-based company, the world's largest computer services company, has applied its services model to electronics design, working for customers ranging from Medtronic on pacemakers to Brother of Japan on karaoke machines.

IBM is also looking to cash in on the growing need of aerospace contractors to fund private research and development rather than rely on government-funded R&D.

With military spending rising generally and the electronics portion of that accounting for an ever-growing percentage of defence spending, IBM eyes an opportunity.

"What we are seeing is a reaction to an overall trend in which the Defense Department is trying to shift more risk back onto the contractors," Parker said.

IBM's rivals in electronic design services include SAIC, Mitre, Rockwell Collins and Thales, Parker said.