March 28, 2007, 12:00 AM

Circuit City plugs in IBM for information technology outsourcing

To improve its financial performance, Circuit City Stores Inc. is outsourcing its information technology program to IBM. The $775 million deal calls for IBM to manage data centers, store support services, e-commerce hosting operations and other systems.

Mark Brohan

Research Director

In a move to improve its financial performance and streamline operations, Circuit City Stores Inc. is outsourcing its information technology program, including web hosting, to IBM.

The relationship covers a broad set of services and technologies. Areas that IBM will manage for Circuit City include data center operations, store support services, e-commerce hosting operations, service desk operations, network management, network services, desktop support, enterprise systems management and I.T. security administration. The seven-year deal is valued at $775 million.

Under the agreement, IBM Global Technology Services will manage the testing and introduction of new technologies aimed at improving customers’ in-store shopping experience at Circuit City. The retailer also will leverage IBM’s extensive experience in managing high-volume web sites with the company hosting and supporting the technology powering the Circuit City e-commerce channel.

Circuit City is outsourcing its I.T. function to improve its financial performance. “The arrangement will result in a benefit to general and administrative expenses in fiscal 2008 and is expected to reduce planned information technology infrastructure expenses by more than 16% over the life of the contract,” Circuit City says.

Circuit City, No. 19 in the Internet Retailer Top 500 Guide, also is terminating 3,400 retail employees, has already closed approximately 60 international segment stores and terminated the lease on a previously closed distribution center in Columbus, Ohio. In the fourth quarter of fiscal 2007, Circuit City expects to record pre-tax expenses of $92 million in goodwill impairment, $31 million related to store and other facility closings, and $21 million related to other restructuring activities.

“We are taking a number of aggressive actions to improve our cost and expense structure, which will better position us for improved and sustainable returns in today’s marketplace,” says Circuit City CEO Philip J. Schoonover.

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