Hewlett-Packard's (HP's)recent $650 million (€567 million) deal with the Bank of Ireland to manage its entire technology infrastructure has got companies in the Irish market excited about outsourcing again.

It is also throwing a lifeline to many of the internet data centres that set up multimillion euro facilities in the late 1990s and early 2000 only to find there were no sales to sustain their businesses.

Internet data centres are huge warehouses stuffed with communications and technology infrastructure, which can run companies internal and Web-based systems.

They are increasingly being used by outsourcing specialists such as HP, Eircom, IBM and Esat BT to manage customers internal IT systems and Web servers off-site.

Several of Dublin's biggest internet data centres either went bust or have been bought out at very low cost over the past two years.

Worldport, Cityreach and Inflow have all exited the Dublin market but insiders believe they can now see signs of recovery.

"I think that HP's deal with the Bank of Ireland will drive business as customers will take an interest in how it works and how it drives efficiency and reduces cost," says Mr Peter Williams, general manager, applications hosting, at Esat BT. "It will certainly be a case study that everyone keeps an eye on."

Esat BT clinched the network management part of the outsourcing deal with the Bank of Ireland, which is estimated to be worth about €170 million over five years. This means that Esat BT will take responsibility for all the bank's communications systems.

The telecoms company has also clinched several other big hosting and IT management deals over the past 12 months with firms such as Adobe, Ryanair.com and Creative Labs.

The strong demand for technology management services has caused Esat BT to explore options on increasing its data centre space.

Mr Williams would not comment, but industry sources say Esat BT is in talks with rival data centre firm Telecity about buying its facility or leasing a considerable amount of co-location space at its centre.

However, Esat BT will not manage the huge amounts of data that the bank will generate at its data centre in Citywest. Instead HP has leased a data centre from another provider in Dublin, Global Voice.

Global Voice acquired the 60,000 sq ft state-of-the-art data centre from Metromedia Fibre Networks, a US firm that got into financial trouble during the downturn.

"We are also using this facility to manage the IT systems of other big customers including the General Registry Office," says Mr Brian Fenix, marketing manager for HP Services. "But I think the Bank of Ireland deal has sent shockwaves through the Irish market. It has caused firms to look at whether outsourcing is a strategic option for them."

In the past, businesses have had concerns about outsourcing IT but are becoming more confident about it. "We are currently talking to very senior people at several big firms in the Republic," says Mr Fenix.

New statistics prepared by consultancy group Gartner show that the value of the outsourcing market in Ireland passed €209 million in 2003 and is set to reach €319 million by 2007. But there is also a subtle shift in the way firms are looking at outsourcing.

"Up to now we have seen a lot of selective outsourcing, where companies sign deals to outsource elements of their IT business," says Mr Fenix. "For example, we manage Glanbia's SAP system from our centre in Britain and part of AIB Capital Markets system. But now people are looking at the larger deals."

Likewise, the internet data centre business is also changing its focus as the trend towards companies outsourcing larger elements of technology continues.

"Traditionally co-location space was a big driver for our data centre business," says Esat BT's Mr Williams. "But more recently we are focusing our efforts on managed services, where we manage the hardware and applications ourselves. This increases the revenue per deal."

The changing nature of the outsourcing and data centre business is also opening up opportunities for smaller niche players.

Data Electronics, an indigenous firm that is probably too small to take on the type of multimillion euro outsourcing deals favoured by large US or Irish multinationals, is targeting small and medium-sized firms (SMEs).

"We have a new outsourcing concept geared towards the SME market called iTotal. It offers firms a nationwide managed data centre services integrated with onsite desktop support services, says Mr Maurice Mortell, chief executive of Data Electronics.

"It is essentially offering firms a single provider for all their operational and support needs."

Data Electronics, which was founded in 1975 by businessman Mr Liam Kehoe, began managing communications infrastructure for companies before data centres existed. But it has taken advantage of the downturn in the market to acquire the assets of two troubled data centres, Inflow and Wolfe Group.

The firm owns two big data centres, although only its site in the Kilcarberry business park is currently being used by the company. This centre manages some of the network capacity for Global Crossing and the HeaNet project, which provides high-speed connectivity to colleges.

But much like HP and Esat BT, Data Electronics is moving up the value chain by offering firms a suite of managed services that enables them to completely outsource their technology systems.

One of Data Electronic's biggest successes to date is its IT outsourcing relationship with car dealership Mitsubishi.

"We manage their entire IT infrastructure including security, customer relationship management, and its print and file server," says Mr Mortell.

"Our iTotal concept has basically evolved from this relationship."

Data Electronics is marketing its iTotal service as a method of reducing company's IT costs by at least 25 per cent. This is made possible because it leverages its existing technology to serve firms, according to Mr Mortell.

The increasing trend towards outsourcing is clearly creating a buzz in Irish industry and, on November 20th, Gartner will host its first summit in Ireland. Unsurprisingly, the theme of the conference is outsourcing.