EDS Gets Go-Ahead for Navy Network Project

Electronic Data Systems Corp. on Tuesday won approval from the Pentagon to proceed with a $6.1-billion Navy contract to set up and run the military’s biggest information technology program.

The Navy-Marine Corps intranet project managed by EDS showed “decidedly measurable progress” in four months of tests of procedures to identify glitches and make repairs, said John P. Stenbit, assistant secretary of Defense for command, control and communications.

“They should go forward,” Stenbit said.

The news drove EDS shares up 74 cents to $18.43 on the New York Stock Exchange. The stock fell 73% last year.

The endorsement follows two years of testing delays on the project to consolidate about 1,000 systems into a single network linking sailors and Marines at more than 300 bases.

Stenbit’s decision will allow EDS to start installing 100,000 computer stations to go with nearly 48,000 already in use. The program calls for as many as 310,000 by the end of next year and 410,000 by 2004.

Plano, Texas-based EDS, the No. 2 U.S. computer services company, in October 2000 beat IBM Corp. and Computer Sciences Corp. for the contract.

Stenbit’s decision is “positive because there has been a lot of skepticism and worry about whether EDS could keep this on track,” said Rod Bourgeois, a technology analyst for Sanford C. Bernstein & Co., who rates EDS “outperform” and does not own any of the company’s stock.

“As long as the Navy contract stays reasonably on track,” Bourgeois said, “the program will go a long way in fixing the free-cash-flow problems that have hampered EDS in the last two years.”

The major subcontractors are Cisco Systems Inc., Dell Computer Corp., General Dynamics Corp., Microsoft Corp. and Raytheon Co.