That'll do nicely: IBM seals $4bn Amex deal

American Express is hoping to slash its IT budget, which runs to hundreds of millions of dollars, by outsourcing a significant slice of its infrastructure to IBM.

Big Blue will take care of web hosting, data centres, desktop strategies and its mid-range hardware and software.

IBM will also take 2,000 American Express IT workers onto its payroll, cutting costs further for the credit card giant.

The computing services will be made available to American Express via IBM's so-called 'utility computing' model - the contract for which is very different to traditional outsourcing deals.

Rather than one lump sum for computing needs, the customer pays bit-by-bit for what is needed.

Nigel White, a strategic partnership executive for IBM and architect of the European side of the deal, explained that using computing resources in this way will give American Express a more resilient and reliable infrastructure for its ebusiness strategy.

He told silicon.com: "This is an endorsement of the direction we've been anticipating in the utility computing model."

But Phil Payne of Isham Research - an IBM observer and analyst - said the credit card company is under extreme pressure to cut costs. He said: "I see it (the deal) driven more by American Express's immediate business needs rather than anything inherent in the 'utility' approach."

American Express has not had the best of times lately. Its fourth quarter net profits fell 56 per cent and it has warned of ongoing difficulties for this year. It also announced significant job cuts last year.

Payne added that the motive for the deal could be viewed in another way.

"Amex's business no longer needs the computer power - it always did over-configure anyway. Rather than dump it, it's given it to IBM and will use as much as it needs. IBM is now free to sell the excess capacity to someone else and Amex can get some money back without going into the services business itself," he said.

The deal comes into place on 1 March.