Electronic Data Systems (EDS)

The rate at which developing economies such as China and India are growing poses a significant obstacle to EDS's continued success. As the economies grow, prevailing wages in those countries will grow, relative to in the rest of the world. This will raise EDS's business costs, as developing countries supply much of EDS's cost-efficient labor, which in turn cuts into EDS's operating margin. This issue may pose a long-term barrier to EDS's business operations.

EDS's performance relies on the rapidly-changing technology market. In order for EDS to continue to be competitive in its industry and retain clients, it must continually innovate and develop new technology platforms faster than other firms. This creates a significant risk, as there is no guarantee that EDS can continue to improve its technology at the necessary pace.

EDS is reporting income figures that may be inflated by non-recurring events. For example, Verizon paid EDS $90 million in the fourth quarter of 2006 and $225 million in the first quarter of 2007 for the early termination of a contract; this income came from a one-time source and temporarily boosted EDS's metrics for those quarters. It is possible that much of EDS's apparent income growth in 2006 was caused by this unique payment.

As a member of the information technology outsourcing industry, Electronic Data Systems is extremely vulnerable to technological shifts and new developments. EDS's contracts with most of its clients are not guaranteed, and renewal of contracts depend on EDS's ability to provide top-of-the-industry services to its clients. If EDS falls behind its competitors, it can quickly lose a significant portion of its market share.