By Mary Welch
As part of an effort to cut costs, Chiron Corp. will turn over management of its information services to IBM in a $139 million, 10-year information technology outsourcing relationship. Emeryville, Calif.-based Chiron expects the contract to generate savings of at least $1 million per year.
Under the agreement, IBM Global Services, of Somers, N.Y., will provide Chiron with a full range of information services, including designing and deploying a company-wide distributed network system, establishing a comprehensive help-desk operation for full-service delivery support and developing a standardized desktop platform using IBM workstations. It will also contribute infrastructure support for SAP, the hardware network Chiron is currently implementing. IBM Global Services is a division of Armonk, N.Y.-based IBM Corp.
"We've been intensely examining all of our operating expenses, and as part of that, we looked at our corporate-wide information systems," said Dave Kingsbury, vice president and chief information officer. "Our goals were to reduce expenses but also to upgrade our overall service. Chiron's systems really needed upgrading. It became obvious that someone had to do a major modernization, and we decided that outsourcing was the most effective way. And it cut costs as well."
Chiron's day-to-day information technology activities will transfer to IBM Global Services July 1, and some 20 Chiron employees will join IBM. One Chiron person will lose a job as a result.
"We developed a plan of what we needed and wanted and looked at several outsourcing companies," Kingsbury said. "IBM adopted our plan — they made a few changes specific to their approach — and they guaranteed that we'd save money. I couldn't do that if we handled the systems in-house. They have economies of scale we couldn't achieve."
"By us helping Chiron with its information systems, it allows Chiron to focus on what it does best — biotechnology," said David Caplan, media relations manager for IBM Global Services. "They will not only save money, but they will be keeping up with — actually they'll be ahead of — the latest technology. They have the infrastructure in place. We'll make sure it's up-to-date and all integrated."
In 1997, Chiron's information systems budget was $31 million; it is projected to be around $29 million this year. "It's hard to figure out exactly how much we expect the association with IBM to save us, but we're estimating at least $1 million a year," said Kingsbury.
The outsourcing deal was not a great surprise to Wall Street, said Eric Schmidt, a biotechnology analyst with Cowen & Co., in Boston. "It's another piece of their initiative to bring more revenues to the bottom line. They're trying to be a leaner, sharper company and it's part of the directives of the new president [and CEO], Sean Lance. They're carrying [those directives] out. He's trying to reshape Chiron."
Information systems is a logical unit to outsource, he said. "That area is difficult to manage internally when you get to Chiron's size. It's a welcome change and more changes are likely to come."
Chiron's stock (NASDAQ:CHIR) was at $16.937, down $0.937. *