Skip to main content

Updated from 3:45 p.m. EST

General Motors'

(GM) - Get General Motors Company Report

announcement that it was awarding the bulk of its IT outsourcing to



was slightly better than what Wall Street expected but still represented somewhat less business between the two companies than in the past.

The contracts, worth about $3.8 billion over five years for EDS, had no immediate effect on the IT services firm's stock price, which was trading about 8 cents off at $25.64. The company said the news wouldn't affect its financial guidance for 2006.

But one analyst said the news was better than expected for EDS.

"Incumbent EDS' revenue run rate with

GM will fall by an estimated 28 %, slightly better than expectations," Cindy Shaw, a senior analyst with Moors & Cabot Capital Markets, wrote in a research note after the announcement on Thursday. "According to EDS, based on today's awards its GM revenue will fall to $1.2 billion to $1.4 billion annually and this is reflected in August 2005 guidance of CY06 earnings per share of greater than $1."

Shaw noted that EDS had previously indicated that the likely floor in GM revenue going forward would be as low as $1 billion.

Shaw, who does not do business with EDS, has rated the stock a buy with a 12-month price target of $28.

Jeff Kelly, EDS' vice president for GM business, said the company bid for about 90% of the GM contracts and was awarded about 70%. But some analysts had predicted the company would only land 50% of the contracts, he said.

"I always felt we could do better than that," Kelly said.

He added that these deals have a "different dynamic" than previous agreements between the two companies. For the first 10 years of EDS' relationship with GM, it was a division of the automaker, and the next 10 years represented the result of a spinoff.

TheStreet Recommends

"This is really the first time when we've come under competition across the whole portfolio," Kelly said. "It's a great validation for EDS and it's a big win."

GM is spending $15 billion over five years on the systems integration contracts, half of which were awarded on Thursday. Contracts were split among EDS,


(HPQ) - Get HP Inc. Report





(IBM) - Get International Business Machines Corporation Report


Compuware Covisint



(WIT) - Get Wipro Ltd. Report

. The new agreement replaces the current contract with EDS, which expires this June.

The shorter contract (from a 10 year contract to 5 years) makes sense, Kelly said, given the competitive issues the automotive industry is facing today.