Honeywell, IBM sign 10-year, US$250M deal

IBM and Honeywell International announced that they have signed a 10-year engineering and technology services deal that covers electronics for aircraft, munitions, and space and surface vehicles.

The agreement between IBM's Engineering & Technology Services unit and Honeywell's defense electronics business is worth up to US$250 million, according to a Honeywell spokeswoman. It provides Honeywell with access to IBM's engineering expertise, technologies, research and development, and manufacturing processes and facilities, and is designed to speed up Honeywell's production of network-centric battlefield components and systems.

In return, the pact provides IBM with military and aerospace resources and expertise, as well as access to avionics and vehicle electronics customers, the companies said.

"Working with IBM will allow us to accelerate the development of new defense and space technologies," Ed Wheeler, vice president and general manager of Honeywell's Defense and Space Electronic Systems, said in a statement. "IBM's expertise in high-bandwidth communication and protocols, as well as their high-performance information processing and network management tools for use on vehicles, will provide our military customers with advanced systems quickly and more cost-effectively."

So while Honeywell gets engineering expertise -- along with IBM's Power Architecture and technology and integration -- IBM gets a partnership with a well-recognized face in the aerospace and defense arena that can help it boost its position in that market, said IBM spokesman Cary Ziter.

"Our goal is to get a bigger piece of that business through our work with Honeywell," Ziter said.

The deal is a reaction to a trend in which the aerospace and defense industry is moving to shift development risks to the contractors, said Bob Parker, an analyst at IDC Management Insights in Framingham, Mass.

"From an IT services industry perspective, this is a very interesting business process outsourcing gig for IBM because it's not offering typical business services such as procurement, payroll, HR administration, accounts receivable," Parker said. "This is an engineering service, not your noncore competency back-office kind of story. We're seeing an IT services company getting into very much a business-centric type of activity."

Parker said IBM got out of this business in 1993 when it sold its Federal Systems Division to Loral, which was later acquired by Lockheed Martin.

"So they stepped out of this direct participation in the defense contracting business with that sell-off, and now, though they're not doing direct contracting, this gets them back into that business a little bit," Parker said. "For Honeywell, it gets a larger measure of control over the electronic design of a system that they normally would have to give up to one of the electronic contractors like Rockwell Collins."

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