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IBM to Take Over Part of Kodak’s Data-Processing Operations

July 25, 1989

NEW YORK (AP) _ The world’s biggest computer company will run a large part of the data- processing operations of the world’s biggest photography company under a deal announced Tuesday.

The contract will mean valuable experience in a relatively new field for International Business Machines Corp. and cost savings for Eastman Kodak Co.

″This allows the customer to focus on their core business, the things they’re particularly good at, and allows us to focus on the things we’re particularly good at,″ said David E. McDowell, the president of IBM’s National Service Division.

IBM will build and run a data center at Kodak’s Rochester, N.Y., headquarters that will take over data-processing work now spread out over three centers in Rochester and one in Windsor, Colo.

The budget of the operations involved is a significant portion, although ″far less than half,″ of Kodak’s annual worldwide budget of $500 million for computing, said Katherine M. Hudson, Kodak’s director of corporate information systems.

Kodak hopes the contract will save it close to half of what it has been spending on the operations that are being taken over, she said. Neither company would disclose terms of their contract.

Kodak Chairman Colby Chandler said Monday the company would take a $225 million charge against second-quarter earnings for costs of consolidating photo-finishing and consumer photography operations and said he was ″very disappointed″ with operating results. The computer deal appears to be a step toward solving those problems.

IBM has been working to become a partner with its customers, embedding itself deeply in their businesses. It won the Kodak job in competition with Electronic Data Systems, a subsidiary of General Motors Corp.

The deal with Kodak, although not highly profitable, ″is the kind of business IBM would like to do more of,″ said Stephen Cohen, a Gartner Group analyst in Stamford, Conn.

″It took IBM maybe 10 years to bring this to this level,″ said Sonny Monosson, a computer industry watcher in Boston.

The contract with IBM may eventually be expanded to include foreign data centers as well as data centers of Kodak’s recently acquired Sterling Drug subsidiary and other U.S. operations, Ms. Hudson said.

Excluded will be personal computers and networks, which will be supplied and serviced under a recently announced contract with Businessland Inc. Also excluded will be specialty computers, such as factory-floor models, most of which are made by IBM rival Digital Equipment Corp.

IBM’s and Kodak’s businesses overlap in some areas, such as image storage and retrieval. But McDowell said the companies see themselves as partners, not rivals.

The new data center in Rochester, which IBM will design, build and staff, will be a showcase for the latest in IBM and Kodak technology. It will take about two years to finish, but IBM will take over data-processing responsibilities sooner, this Oct. 2.

Slightly less than 300 Kodak data-processing employees will become employees of IBM.

Kodak uses computers from companies other than IBM, and that will continue under IBM management, McDowell said. ″We don’t have a particularly strong vendor bias when it comes to solving a customer’s operational problem,″ he said.

Still, Cohen of Gartner Group said the deal would give IBM a firmer lock on the Kodak account. ″I don’t think Amdahl is going to stand much of a chance of selling a mainframe to IBM,″ he said.