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Novell cuts ERP outsource deal

Inks partnership with ACS

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Novell, having reported its second quarter financial results yesterday after Wall Street closed, said it had inked a deal with Dallas-based Affiliated Computer Services to have that outsourcer take over its ERP systems and related data center in Provo, Utah.

While the operating system supplier is headquartered back in Waltham, Massachusetts, a big chunk of its operations are still back in Provo. And in an effort to cut costs and to get ACS on board using Novell's products in its outsourcing engagements, Novell has cut a two-way deal with the outsourcing firm.

Under a $135m, five-year outsourcing contract, ACS will take over part of the Provo data center operations and will also provide consulting, application development, integration and maintenance services for Novell's SAP ERP suite. The other part of the deal will see ACS buy $30m of Novell products over the first three years of the deal to upgrade its own data centers.

As part of the outsourcing contract, 156 employees in Novell's Information Services and Technology group will start getting their paychecks from ACS instead of Novell, dropping its global employee count to 3,745. Basically, the outsourcing deal has allowed Novell to shed four per cent of its workforce.

Dana Russell, Novell's chief financial officer, said that the company's Provo IT staff were "first class" and heaped on high praise for them, but running an ERP system is not a mission critical operation for Novell. Peddling Linux everywhere it can in the hopes of making Linux a profitable business, however, is; and Hovsepian wants all hands on deck to be doing this.

ACS and Novell are investing in joint engineering, technology, sales, and marketing initiatives, according to the announcement, and ACS will be buying Novell software to run its ACS Management Platform, which is its outsourcing operations. ACS says it wants to enhance its outsourcing platform with process automation, automatic provisioning and cloud computing, and adds that it will be buying SUSE Linux and PlateSpin management tools as well as various identity management products from Novell to build up this capability.

Novell wants ACS using its tools, not just because it wants the $30m, but because it wants feedback into its engineering teams so that it better understands the features that large enterprises need in operating systems and systems and identity management tools.

Russell said that the two companies would be using the Provo data center as a showcase for the deployment of Novell's products, and that is what Novell was really excited about.

"It is a validation of our data center story," Russell said, "with the use of products we have been talking about - PlateSpin, Managed Objects, and so forth - and is a very, very good synergistic transaction for both parties. So I wouldn’t completely focus on the cost savings there because this wasn't really the motivation for doing this."

To be sure, ACS has partners and customers who might be encouraged to use SUSE Linux, PlateSpin and other products from Novell. But with revenues possibly staying flat all year Novell has to cut costs, and in the end this deal got done because it lowers Novell's internal IT bill. The extra sales of products to ACS and the potential of getting ACS customers using Novell's products are gravy.

Novell apparently put the outsourcing contract for its ERP system out for competitive bidding, but did not identify who the other bidders were. ®

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