Despite its powerhouse status in the information technology (IT) space, Electronic Data Systems
EDS posted a 3% increase in revenue to $5.22 billion and snagged $3.4 billion in contract signings. While this compares to $10 billion in contract signings in Q1 of 2006, that period included outsized deals from General Motors
First-quarter profits for EDS surged almost sevenfold, to $164 million or $0.31 per share, but free cash flow was a disappointing negative $8 million, largely because of EDS's lax management of its accounts receivable.
EDS signed seven deals worth more than $100 million in the quarter, but no megadeals of $1 billion or more. EDS isn't losing out to the competition -- there just aren't many deals that big on the market at present, which may signal a general slowdown in IT spending.
From the conference call, it sounds like EDS will gear up its acquisitions -- perhaps another sign of an IT slowdown, as businesses gobble up smaller rivals to eke out additional growth. Look at Computer Sciences Corp.
EDS has undergone an amazing transformation over the past couple years, giving it the resources to carry out major acquisitions. All the same, a slowdown in the IT sector could weigh on the stock in the short run. In this case, it's probably best for Foolish investors to wait and see.
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