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Electronic Data Systems Wins Huge ($6.9B) U.S. Government Contract

EDS Takes Over U.S. Navy

EDS’ Navy Blue (Logo) Blends Well with U.S. Navy Blues

Text Box:  PHOENIX, Oct. 10  Electronic Data Systems (EDS) has just taken over the U.S. Navy and the Marines.  Well, not the shooting part; the computing part.  In winning the largest federal government outsourcing award in history, EDS navy blue (logo) turned out to be a better match for the Navy’s blue than the Big Blue’s.  EDS beat out both IBM and CSC to win the $6.9 billion megadeal.

The latest EDS win won’t affect the company’s revenue significantly until the second half of next year.  But when it does, “it’ll be a gusher,” according to Dick Brown, the EDS CEO, as quoted in a Wall Street Journal’s Oct. 9 report.  And it will certainly help propel the EDS revenues back into the double-digit growth range.

Naturally, Wall Street applauded the big EDS win initially, but notText Box:  for long.  The EDS stock pulled back over the following two days, under the pressure of other declining technology shares, and a general softness of the market. After reaching $47.38 on Oct. 9, the EDS stock is now back in the $44 range (see the chart).

Some $4.1 billion of the EDS Navy contract will come over a period of five years.  The deal also includes an optional $2.8 billion three-year extension.

EDS and its sub-contractors (Raytheon, WorldCom and WAM!NET) will install and upgrade the latest information technology solutions at Navy’s 300 onshore bases in the U.S. and around the world. 

The U.S. Navy Secretary Richard Danzig said the Navy expects to save about $200 million in annual IT costs as a result (from about $1.6 billion per year it is spending now, to about $1.4 billion).

He likened the EDS outsourcing deal as to contracting for electricity.  “Instead of owning the power plants and wires, the Navy will simply buy the service,” he said, according to the Journal article.

Outsource the U.S. Government?

Three years ago, as EDS was winning the British government outsourcing deals left, right and center, we noted that the British government is practically outsourcing itself to EDS.  And we made a tongue-in-cheek suggestion in a Nov. 6, 1997 letter to the New York Times.  Here's an excerpt (see Annex Bulletin 99-01):

"…So why not take a cue from business, and outsource the whole darn federal government?

It's been done before, and successfully at that. EDS, for example, is practically running the British government. Much more efficiently than the civil servants did. And the business is booming.

In the end, everybody wins: The taxpayers are happy because they save money. The EDS shareholders are happy because the company makes money. 

But there would be a few unhappy losers, too - the crooked politicians and some laid-off government bureaucrats. But then, they are losers even now while in the federal government.”

Well, after the huge latest EDS win, maybe our tongue-in-cheek remark is no longer as outlandish as it seemed three years ago.  Maybe the U.S. Navy deal is just the first step in that direction?

Wishful thinking, we know, especially with the big government-favoring Democrats in power.  But keep dreaming, anyway…

The Chinese Connection

Text Box:  Speaking of the Democrats and their Chinese connection, EDS may find itself having to walk a political tightrope during the course of the Navy deal.  Not only has the Clinton administration opened our military secrets chest to the Chinese (see “Red Chinese Get Red Carpet Treatment by Klinton’s Navy,” Sep. 21), it is also acquiescing to educational institutions, such as Harvard, training them in how to fight the U.S. (see “Harvard Trains Chinese Communist Colonels in How to Fight the U.S.,” Aug. 29, 2000 ).

So EDS may brace itself for some flak from the American public which may come along with the billions of dollars the company is about to receive from the Navy.

 Happy bargain hunting!

Bob Djurdjevic

NOTE: The print edition of this report, of course, contains additional charts and tables not included here.

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Volume XVI, No. 2000-22
October 10, 2000

Editor: Bob Djurdjevic
Published by Annex Research;
e-mail: annex@djurdjevic.com

P.O. Box 97100,      Phoenix, Arizona 85060-7100
TEL: (602) 824-8111        FAX:

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