Cap Gemini France gets a bit
DETROIT (Reuters) - General Motors on Thursday announced the winners of a two-year battle to take on up to US$15 billion in technology contracts as the automaker's decade-old deal with Electronic Data Systems expires.
EDS, which was spun off from GM in 1996, surprised analysts and investors by retaining a larger share of the GM contracts than expected. Plano, Texas-based EDS bagged just over one-half of the GM outsourcing, worth US$3.8 billion over five years.
International Business Machines won US$500 million over five years, disappointing some who had expected its business services division to carve out a larger share of the GM business.
India's Wipro won US$300 million in GM contracts over five years — a large sum in the Indian market.
Contracts were also awarded to Hewlett-Packard, France's Cap Gemini and the Compuware Covisint unit of Compuware Corp.
The announcement comes as GM, which lost US$8.6 billion in 2005, is trying to cut costs and restructure its North American operations.
GM declined to disclose how much it would save through the outsourcing.
EDS, which had about two-thirds of GM's business over the past 10 years and derived about 10 percent of its revenue from the automaker, said it expected total revenue from GM to be near US$1.2 billion to US$1.4 billion on an annualized basis.
"It sounds like the fallout for EDS might not be as pronounced as some people had expected," Moors & Cabot analyst Cindy Shaw said.
HP said it won more than US$700 million over five years.
Shaw said that the new business could be "meaningful" for HP, which has a smaller share of the outsourcing market than its rivals. She said that IBM could have to compete for a share of the other US$7.5 billion GM has yet to outsource.
"IBM may be left to duke it out for the remaining half of the contract that has yet to be awarded," Shaw said.
Cost savings unclear
The GM announcement follows a two-year review and caps one of the largest and most complicated technology outsourcing efforts ever by a single corporation.
"There will be savings for GM as a result of increased efficiencies gained through this process," Ralph Szygenda, chief information officer at GM, said on a conference call.
But he added GM had not made its awards on the basis of projected savings alone, although cost cutting remains a key priority for Chief Executive Rick Wagoner.
"The winners today (won) because they had the best capability," said Szygenda, who joined GM around the time of the EDS spinoff. "We didn't let the lowest cost drive us. We didn't let payment terms drive us."
Dave Cole, president for the Center for Automotive Research, said it was likely GM chose not to detail its cost-savings because of the "delicate period" it faces in union talks.
"In general, there are real concerns about talking too much right now. The negotiations with the UAW and Delphi suggest it's better to keep quiet," he said.
GM is helping bankrupt auto parts supplier Delphi Corp in talks with the United Auto Workers union to possibly cut wages and jobs. GM, which spun off Delphi in 1999, would be responsible for the benefits of some Delphi hourly workers if they were laid off.
"Talking about any other savings right now would diminish the chances for a constructive bargaining process with the union," Cole said.
The outsourcing work will include computing operations and application support for areas such as automotive product development, manufacturing and supply chain, as well as GMAC financial services.
GM said it would separately award telecommunications contracts later in the year.
Additional reporting by Kevin Krolicki in Detroit, Phil Gollner in San Francisco and Jim Finkle in Boston.
DETROIT (Reuters) - General Motors on Thursday announced the winners of a two-year battle to take on up to US$15 billion in technology contracts as the automaker's decade-old deal with Electronic Data Systems expires.
EDS, which was spun off from GM in 1996, surprised analysts and investors by retaining a larger share of the GM contracts than expected. Plano, Texas-based EDS bagged just over one-half of the GM outsourcing, worth US$3.8 billion over five years.
International Business Machines won US$500 million over five years, disappointing some who had expected its business services division to carve out a larger share of the GM business.
India's Wipro won US$300 million in GM contracts over five years — a large sum in the Indian market.
Contracts were also awarded to Hewlett-Packard, France's Cap Gemini and the Compuware Covisint unit of Compuware Corp.
The announcement comes as GM, which lost US$8.6 billion in 2005, is trying to cut costs and restructure its North American operations.
GM declined to disclose how much it would save through the outsourcing.
EDS, which had about two-thirds of GM's business over the past 10 years and derived about 10 percent of its revenue from the automaker, said it expected total revenue from GM to be near US$1.2 billion to US$1.4 billion on an annualized basis.
"It sounds like the fallout for EDS might not be as pronounced as some people had expected," Moors & Cabot analyst Cindy Shaw said.
HP said it won more than US$700 million over five years.
Shaw said that the new business could be "meaningful" for HP, which has a smaller share of the outsourcing market than its rivals. She said that IBM could have to compete for a share of the other US$7.5 billion GM has yet to outsource.
"IBM may be left to duke it out for the remaining half of the contract that has yet to be awarded," Shaw said.
Cost savings unclear
The GM announcement follows a two-year review and caps one of the largest and most complicated technology outsourcing efforts ever by a single corporation.
"There will be savings for GM as a result of increased efficiencies gained through this process," Ralph Szygenda, chief information officer at GM, said on a conference call.
But he added GM had not made its awards on the basis of projected savings alone, although cost cutting remains a key priority for Chief Executive Rick Wagoner.
"The winners today (won) because they had the best capability," said Szygenda, who joined GM around the time of the EDS spinoff. "We didn't let the lowest cost drive us. We didn't let payment terms drive us."
Dave Cole, president for the Center for Automotive Research, said it was likely GM chose not to detail its cost-savings because of the "delicate period" it faces in union talks.
"In general, there are real concerns about talking too much right now. The negotiations with the UAW and Delphi suggest it's better to keep quiet," he said.
GM is helping bankrupt auto parts supplier Delphi Corp in talks with the United Auto Workers union to possibly cut wages and jobs. GM, which spun off Delphi in 1999, would be responsible for the benefits of some Delphi hourly workers if they were laid off.
"Talking about any other savings right now would diminish the chances for a constructive bargaining process with the union," Cole said.
The outsourcing work will include computing operations and application support for areas such as automotive product development, manufacturing and supply chain, as well as GMAC financial services.
GM said it would separately award telecommunications contracts later in the year.
Additional reporting by Kevin Krolicki in Detroit, Phil Gollner in San Francisco and Jim Finkle in Boston.
