Company News

I.B.M. Subsidiary to Handle Southern Pacific Rail's Data

By Adam Bryant
The New York Times

November 9, 1993

The Southern Pacific Rail Corporation, the sixth-largest freight railroad in the United States, said yesterday that it would turn over much of its information-processing operations to a unit of I.B.M.

The companies said that under the deal, the first of its type in the railroad industry, Southern Pacific is to pay $415 million over the 10-year life of the contract to the Integrated Systems Solutions Corporation, a unit of the International Business Machines Corporation. Southern Pacific said the contract would save the company $10 million a year.

Southern Pacific is leading what some industry analysts believe will be a trend among railroads: contracting with outside companies to handle information management.

Refocusing Efforts

In recent years, railroads have concentrated their efficiency efforts on an industrywide shift to smaller train crews. "They've had plenty on their plate, but now they're focusing on all aspects of their operations," said Scott Flower, a transportation analyst at Kidder, Peabody.

Although Southern Pacific was among the rail industry leaders in embracing computer technology in the 1970's, it developed a reputation as something of a laggard in the industry in the 1980's, particularly during the mid-1980's, when the company was held in a trust pending an acquisition that never occurred. During that time, little was done to modernize operations.

The rail industry appears to be a fertile niche for companies like Integrated Systems, but the I.B.M. unit faces competition from such companies as the Electronic Data Systems Corporation and the Perot Systems Corporation, which also bid on the Southern Pacific contract.

Shift of Employees

Southern Pacific said that most of its 350 employees in the affected operations would be joining Integrated Systems but would remain in the railroad's San Francisco headquarters. But about 50 jobs will be transferred to Boulder, Colo., where Integrated Systems will move some of the operation. One reason Southern Pacific wanted an information manager from outside was to have a better emergency backup system.

Integrated Systems has landed a number of big contracts since it was formed in 1991. It had $1.8 billion in revenues last year and has signed 15 contracts this year. Integrated Systems and its competitors undoubtedly hope that the Southern Pacific contract will open the way to serving other rail companies. Taken together, railroads spend roughly $1 billion a year on information management.

Copyright 1993 The New York Times Company