EDS lands US$4.5b Bank of America outsourcing contract

Bank of America Corp. has awarded Electronic Data Systems Corp. (EDS) a 10-year, US$4.5 billion outsourcing contract to provide "end-to-end" network management services, the companies announced Thursday.

The services include not only bread-and-butter infrastructure management services, but also network re-engineering and design work to help Bank of America "transform" its voice and data networks with newer platforms, the companies said. The goal is for the bank to use the revamped technology to provide new and improved services to clients, partners and employees and to better support its business objectives, the companies said.

The deal calls for about 1,000 employees in the bank's technology and operations division in the U.S. to transfer over to EDS. The 10-year engagement, which applies to the bank's U.S. operations only, is slated to begin on Feb. 1, 2003, an EDS spokesman said.

Bank of America's decision follows a trend in the financial industry, as banks and other financial institutions try to focus on their core businesses and lower IT costs by entrusting outside specialists with some of their technology tasks.

For Plano, Texas-based EDS, the world's second largest provider of IT services, the deal is significant because the company has had a rough year. For example, in September Procter & Gamble Co. was ready to award EDS what is considered one of the largest IT outsourcing contracts ever, but backed off when EDS announced a steep and shocking third-quarter earnings and revenue shortfall. EDS' earnings have also taken hits this year from the big bankruptcies of WorldCom Inc., US Airways Group Inc. and UAL Corp. In October, EDS announced cost-cutting measures, including laying off between 3 percent and 4 percent of its global workforce.

This type of large outsourcing deal often requires the services provider to invest a heavy amount of cash into the project at the beginning of the engagement, a touchy issue with EDS, which has been criticized by financial analysts for lower-than-expected free cash flow. But the EDS spokesman said Friday that this deal is atypical of deals its size because it doesn't require EDS to acquire any equipment from Bank of America. "The only upfront costs are the standard operating costs of starting up a new contract," the EDS spokesman said. EDS expects to break even the first year of the contract, he added.

In early morning trading, EDS' stock (EDS) was at US$19.45, up 3 percent from Thursday's close of US$18.88. The deal was announced after the closing of the financial markets in New York.

Bank of America, based in Charlotte, North Carolina, is the third-largest bank in the U.S. in terms of assets, according to Hoover's Inc. business information Web site Hoover's Online. It has 30 offices outside of the U.S. serving clients in over 150 countries, and about 134,000 employees worldwide, a spokeswoman said. Bank of America had revenue of US$34.9 billion in fiscal year 2001, she said.

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