EDS megadeals in troubled times

EDS megadeals in troubled times

It's been a bumper week for troubled service heavyweight EDS, extending multi-million dollar contracts, signing up Bank of America for US$4.5 billion whilst lowering its fourth quarter expectations.

Amidst talk of difficulties suffered by the service company, telecommunications carrier AAPT has signed Electronic Data Systems (EDS) on to a 10-year agreement valued at US$70 million.

Under the contract with AAPT, Telecom New Zealand Group's Australian subsidiary, EDS will operate the carrier's company-wide information systems (IS) including its enterprise applications and technical infrastructure.

The contract commences March 1, 2003. Initially 42 AAPT employees will transition to EDS Australia as part of the agreement. EDS will also draw on its Australian and New Zealand operations to provide these services.

The deal marks a further extension of the outsourcing relationship between EDS and the Telecom New Zealand Group. EDS and Telecom New Zealand entered the relationship in mid 1999 through a 10-year, US$800 million contract. In August 2002 the companies announced a US$133 million, three-year extension to the existing agreement through 2012. As part of this agreement, EDS New Zealand supplies most of Telecom’s centralised and decentralised computing platforms; most of its major billing and network provisioning systems; and a full range of application development and maintenance services.

"By selecting EDS, we expect to improve the overall quality of our IT delivery while reducing costs. This business relationship will generate noticeable business value," AAPT’s Group Director Service Delivery, Ian Buchanan said in a statement. "Over the last three years we’ve seen first hand the benefits that Telecom New Zealand has realised from its strategic relationship with EDS."

It remains to be seen how the news of megadeals, including a US$4.5 billion deal with Bank of America signed last week, the largest deal EDS has signed this year, will bolster investor confidence. However, EDS has suffered some serious blows in 2002 amid an IT spending slump.

EDS said fourth-quarter and full-year earnings would fall by 5 cents per share because of aircraft lease deals with United Airlines, whose parent company UAL filed for bankruptcy on Monday. EDS will write down an investment balance of about US$40 million that it has in leveraged aircraft leases with United Airlines.

Shares in EDS have also suffered after the company offered third-quarter earnings guidance well below expectations, with the results including write-downs associated with other high profile bankruptcies, including WorldCom and US Airways Group.

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