EDS Bucks Trend With Good News In 1Q

EDS resisted the downward pull of the market during the first quarter of 2001, logging substantial increases in revenue, earnings, and contract signings for the period ended March 31.

First-quarter earnings were $446 million, or 56 cents per share, on just under $5 billion in revenue. This was a sizeable increase from the same numbers for the first quarter of 2000 when EDS earned $228 million, or 47 cents per share, on $4.6 billion in revenue.

Contract signings for the quarter increased 67% for the quarter to $7.5 billion on the strength of deals with Sabre Holdings Group, Blue Shield of California, and DecisionOne. General Motors Corp.-related revenue declined in the quarter to $794.1 million from $856 million a year ago. Last year, EDS said it expected 2001 GM revenue to flatten or grow slightly for the first time since 1996.

While systems integration and business-consulting services have been identified by some analysts and service providers as areas of weakness given the economic slowdown, EDS chairman and CEO Dick Brown says he doesn't question future demand for these services. "There is no slowdown in our business," he says, pointing out that management-consulting division A.T. Kearney's contract signings were up 67% from the fourth quarter, even though revenue was down slightly. The service provider's Information Solutions outsourcing division saw a 20% increase in revenue from the first quarter of 2000.

The sagging economy has hurt competitors, but EDS and IBM Global Services have been able to avoid layoffs and have even made acquisitions because they have strong IT outsourcing businesses. They don't rely on high-end consulting or systems integration as much as Accenture, Computer Sciences, or KPMG Consulting.

EDS won some major outsourcing deals in the first quarter on the basis of its brand-name recognition and experience in specific vertical industries, says Aberdeen Group research director Stephen Lane. The service provider's 10-year, $2.2 billion March outsourcing contract with Sabre Group Ltd. in particular is just one example of how EDS was able to leverage vertical-industry experience--in this case the travel industry--to win an IT outsourcing contract and become the top IT service provider to the $33 billion transportation industry, with 10% market share.