13 January 2005 IT services giants EDS and IBM are leading the chase to land the $15 billion outsourcing deal with General Motors.
The final decision is expected to be announced before the end of January 2006, but market watchers believe that GM’s decision is now between IBM and EDS.
EDS currently holds the contract to manage GM’s IT infrastructure, and its position as favourite is no surprise: GM previously owned EDS. EDS’s current contract expires in June 2006.
But GM is heavily reliant on IBM’s hardware, and may see an advantage in contracting its services from one of its hardware suppliers.
Merrill Lynch analyst, Tal Liani, recently reported he believed that EDS would win the five-year contract.
He also noted that network equipment titan Cisco Systems stands to make at least $40 million dollars from replacing GM’s telecommunications infrastructure alone, wishould EDS secure the deal.
Other analysts predict that EDS will lose the contract to IBM. Equity analysts Moor &Cabot noted that GM is already a major customer for IBM’s hardware division. The company may chose to consolidate its third party deals by using but one technology service provider.
In recent years, large enterprises have been increasingly open to consider alternatives to so-called outsourcing ‘mega-deals’, with the number of contracts awarded increased, while the overall value of deals has decreased. The GM deal clearly bucks that trend: it is worth around $15 billion over five years.
According to outsourcing consultancy Technology Partners International (TPI) six mega-deals were signed in the last quarter on 2005 across the globe. The average value was €1.4 billion ($1.7bn), making the GM deal extremely alluring.