Dow Hires IBM To Take VoIP Project Over From EDS

Now it's IBM's turn to try to build a voice-over-Internet communications system for Dow Chemical. The manufacturer of chemical and plastics products has given IBM a seven-year, $1.1 billion contract to create a combined voice, data, and video network for its worldwide operations. Dow hired EDS to build such a network more than three years ago but booted EDS from the job recently after the contractor conceded it couldn't implement the deal for the agreed upon price, according to analysts familiar with the situation. Dow originally tapped EDS under a seven-year, $1.4 billion deal announced in December 2000.

Under its contract, IBM will create a voice-over-IP system for more than 50,000 Dow employees in 63 countries. The contract extends to other infrastructure-management services, such as LAN, E-mail, and application support. Todd Kirtley, general manager for IBM Global Services' industrial group, says the company will take a different tack than EDS to building Dow's VoIP system, including using elements of its Tivoli network-management products. The system will be run from IBM data centers in Boulder, Colo., as well as Brazil, Singapore, and the Netherlands.

In the first six months of this year, EDS absorbed $229 million in charges as a result of costs from the Dow contract. Last week, the company formally disclosed its intention to quit a major "commercial contract," though it didn't identify the customer. A Dow spokeswoman says the company is satisfied with its "settlement" with EDS. EDS officials declined to comment.

EDS's loss of the Dow contract is the latest in a series of black eyes for the company. On Sunday, lengthy travel delays resulted after an EDS-operated reservation and scheduling system for American Airlines and U.S. Airways crashed. Last month, Moody's Investors Services lowered its rating of EDS's debt rating to so-called junk status. And the company has struggled for years, financially and operationally, to implement a contract to build an intranet for the Navy and Marine Corp.

Gartner analyst Eric Goodness says EDS continues to suffer from deals signed during the tenure of former CEO Dick Brown, during which the company "was overly aggressive and sought revenue at any price." Says Goodness: "The remaining question is how many more of those deals does EDS have lurking?"