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IT companies were on Thursday dividing the spoils and assessing the damage after General Motors, the struggling US carmaker, announced the first wave of up to $15bn in new IT outsourcing contracts.
Electronic Data Systems, GM’s main IT services provider, secured contracts worth $3.8bn over five years - a majority of the business awarded yesterday. The company proclaimed its bid a success in spite of the fact that it lost about a third of the outsourcing business that it holds under its existing GM contract, which is set to expire in June.
Mike Jordan, chief executive of EDS, said: “We are very pleased. Not only is it a good piece of business and an important piece, but it’s a vote of confidence in our new strategy and the changes we’ve made to improve our service to GM over the last few years.”
EDS, a former GM unit spun out 10 years ago, was forced to start from square one when GM opened bidding on the new contract, one of the biggest-ever corporate IT outsourcing deals. EDS lost less business than most analysts had feared amid a broader move by big companies away from relying on individual vendors for IT needs.
By signing contracts with multiple vendors that use standardised technologies, GM and other companies hope to negotiate better prices and make it easier to swap providers if necessary once a contract expires.
Mr Jordan said that the lost business would not affect EDS’s earnings forecasts for the coming quarter or for the full year. EDS said it expected the new contract to conrtibute towards revenues of between $1.2bn and $1.4bn a year over the next five years.
Winners in Thursday’s announcement included Capgemini, the French IT services group, and Hewlett-Packard, the US computer maker, both of which increased their existing business with the company.
HP said it had won more than $700m in new business over five years. Capgemini won new contracts worth $500m.
IBM, the world’s biggest computer group, also won a $500m contract while Wipro, India’s third-biggest IT outsourcing group, won $300m in new business over five years.
GM said it planned to distribute the remainder of the $15bn in outsourcing deals over the next five years. These include contracts for managing telecoms services, which expire this year.
Ralph Szygenda, GM’s chief information officer, said the outsourcing drive would save the company money and improve efficiency, but he declined to cite specific numbers.
GM forced suppliers which wanted to bid to draw up standard working procedures during the past two years.
Mr Szygenda, said this was designed to avoid the “chaos” multiple IT suppliers often introduced and ensure GM’s global systems all worked together.
EDS shares ended Thursday’s session down 0.4 per cent at $25.62, while GM shares fell by 3.7 per cent to $23.60.