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Commentaries & Highlights

Wednesday, October 15, 2003

EDS Announces Potential IPO of the PLM Solutions Group (Commentary)

ANN ARBOR, Michigan, October 16, 2003 — EDS today announced it is considering an Initial Public Offering (IPO) or private offering of a minority stake in its PLM (Product Lifecycle Management) Solutions subsidiary as a strategic alternative for the business. EDS expects to complete any actions that arise from its review of strategic alternatives for PLM Solutions in the first half of 2004. The new company would retain its strong ties with EDS and be able to leverage that relationship to deliver comprehensive solutions to its clients; however they will have less access to EDS' financial resources.

According to CIMdata, this announcement will help reduce some uncertainty that had been associated with EDS' PLM Solutions Group since EDS' public financial issues became highly visible a year ago. Many rumors have circulated concerning EDS' intentions concerning their PLM Solutions Group, and this announcement provides a clear "next step" for their intentions.

Ken Amann, CIMdata Director of Research said that “establishing the PLM Solutions Group as a public company would be a very positive move for both EDS and for the new entity.” EDS is fundamentally a service company while the PLM Solutions Group is a software company with a service component. Establishing PLM Solutions as a separate public entity will enable it to act more independently, and as a software product-focused organization. Further, such a move will free the PLM Solutions Group from the perception that it is an “EDS only” services provider and distribution channel. Prior to the acquisition by EDS, SDRC had one of the largest and most effective partner programs for both services and sales. Post acquisition, many former and potential new partners were concerned about possible competition from other EDS business units. Making PLM Solutions into a public company will enable it to re-energize and expand its partner channels, and improve its competitive market positioning. With the establishment of a separate company, leading systems integrators such as Accenture, Cap Gemini Ernst and Young, and others in the U.S. and around the world would more likely to be more aggressive about using the Teamcenter, NX and E-Factory products in delivering PLM solutions to their clients.

According to the announcement, EDS will retain a majority ownership but establish the PLM Solutions Group as a public company. While the exact percentage of ownership was not disclosed by EDS, history with EDS and the former UGS would put this percentage in the 80%+ range. This would enable EDS to continue to receive financial benefits resulting from the success of the new company. At the same time, the new PLM Solutions company will receive a cash infusion as a result of the IPO which should certainly be useful in funding future development and market expansion programs. As a separate company, PLM Solutions' market position, financials, and business operations would be much more visible. Currently, results from the PLM Solutions Group are hidden within EDS' operations and corporate financial reporting. The new separate entity would enable the industry to gain a much clearer view of them and their situation.

CIMdata expects that EDS and the new company will have a strategic relationship somewhat similar to that of IBM and Dassault Systèmes, although with a much closer financial relationship. We expect EDS will continue to commit significant resources to both support the new company and to take advantage of it to further develop their own PLM-focused service businesses. Prior to the SDRC acquisition, EDS was the largest provider of services for the Metaphase suite of products. Following establishment of a separate company, we would expect EDS to continue to be the major implementer of the new PLM Solutions Company's product suite.

"In summary, we believe this is a positive move in the PLM industry, and one that should have positive implications for both EDS and the EDS PLM Solutions group", states Ed Miller , CIMdata President.

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