EDS To Spin Off Life-Cycle UnitEDS To Spin Off Life-Cycle Unit

Sales of product-life-cycle-management software and services are expected to more than double in the next couple of years. Hoping to leverage this growing interest, EDS last month said it's considering an initial public offering or a private offering of a minority stake in its PLM subsidiary. Last week, it said it's changing the name of the subsidiary as it further establishes the business as an independent organization that can be more agile.

"We're getting set up to run [the PLM unit] autonomously," says Tony Affuso, president and CEO of UGS PLM Solutions, formerly EDS PLM Solutions. "Changing the name is another transition on the way to becoming an independent company." In a way, it's a back-to-the-future scenario: EDS built its PLM business in 2001 by acquiring and combining two companies, Structural Dynamics Research Corp. and Unigraphics Solutions Inc.

A spin-off would be in line with the strategy espoused by EDS's chairman and CEO, Michael Jordan. The services firm has seen hard times in the last year and wants to focus on its core business in IT services (see "Turnaround Time," Nov. 10, p. 69).

Product-life-cycle management, which has its roots in CAD/CAM technology, has a strong following in the aerospace, defense, and automotive industries, and it's on an upward trajectory. According to ARC Advisory Group, the market for PLM software and services is expected to grow from $6.3 billion this year to $14.1 billion in 2007. That growth is expected to come as a broader list of industries take an interest in the technology, including consumer packaged goods, pharmaceuticals, and life sciences (see "Product Process," July 14, p. 24).

EDS has long been a leader in this market, competing heavily with rival IBM. It has added to its Teamcenter line for the automotive and aerospace industries a process-manufacturing offering, which Procter & Gamble Co. helped develop. The collaboration led to a five-year software deal in which P&G will expand its use of Teamcenter, a product-life-cycle-management suite that supports collaboration among various depart- ments throughout the lifetime of a product. P&G plans to increase from about 7,000 to an estimated 30,000 users. The deal is worth about $50 million, Affuso says.

The PLM unit's name change and EDS's courting of outside investors could be a good move for EDS, according to industry analyst firm Forrester Research in a research note released last week. The move will give PLM Solutions "operating freedom" that will appeal to customers who want to use the Teamcenter suite but work with an EDS competitor, such as BearingPoint, for implementation, Forrester says.

Timing for a spin-off may also be right. Business has picked up in the last several months: EDS reported in its third quarter that PLM Solutions revenue increased by 8% over the same period a year ago, and its operating profit jumped 54%.

The integration work needed to bring together the different product sets from EDS, Unigraphics, and Structural Dynamics into a cohesive architecture has been completed, Affuso says. In addition to Teamcenter, there are two other core product groups: Unigraphics NX, a group of product-engineering tools, such as CAD/CAM, designed to help companies digitally create and capture three-dimensional product definitions; and E-factory, software that helps companies manage preproduction manufacturing information.