From large companies such as Accenture (NYSE:ACN) and IBM (NYSE:IBM) to smaller, more focused operators such as Resources Connection (NASDAQ:RECN), there are dozens of ways to play the outsourcing trend. Turnaround candidates are also a possibility -- one of them being EDS (NYSE:EDS), a company that looks like a potential value but has some meaningful headwinds to address.

Results from the second quarter point to signs of progress and work left to be done. Revenue rose about 5% on an organic basis, and though margin analysis is complicated by various items, pro forma operating margin nevertheless improved, as did gross margins. Free cash flow generation was also quite a bit stronger than in the comparable period, but that was off a relatively low base.

Bookings for the quarter roughly doubled from the year-ago period and totaled about $5.4 billion, including high-value deals with the likes of Kraft (NYSE:KFT) and Bank of America (NYSE:BAC). Moreover, the company continues to see good growth in its government segment, a relatively large contributor to overall results.

EDS management indicated that it will be spending more on severance in the second half of the year. That suggests potential margin leverage in 2007 as the company seeks to approach its target of 7% margins, versus 3% reported this quarter.

That said, some larger issues still concern me. For starters, because EDS was relatively late to the outsourcing game, it lags behind the likes of Accenture and IBM. EDS is trying to catch up, though, which may ultimately be bad news for operators such as Infosys (NASDAQ:INFY) as more companies compete for a finite labor supply.

I'm also worried about the structure of EDS's business -- namely, its reliance on large-scale deals. If companies begin "unbundling" these large awards and spreading them out among several companies, that would be a clear threat to business as usual. Don't forget, there's also old-fashioned competition from the likes of Accenture, IBM, Perot, and Computer Sciences.

I'm cautiously optimistic that EDS can keep up in the changing outsourcing world. Companies aren't going to stop outsourcing non-core functions, and as long as EDS can change with the times, the stock may prove to be a reasonable bargain at today's levels.

For more homegrown Foolish thoughts on outsourcing:

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).