Opsware Renews EDS Contacts

Opsware Inc. (Nasdaq: OPSW) today said its largest customer, Electronic Data Systems Corp. (EDS) (NYSE: EDS), has signed a three-year, $50 million contract extension with a $95 million option for an additional five years beyond that.

The news boosted Opsware shares $0.15 (2.66%) to $5.78.

Opsware, formerly Loudcloud, makes data center management software, which is also known as -- of all things -- Opsware. The company first signed EDS two years ago, and EDS acquired Opsware's services business. EDS will account for 62 percent of Opsware's revenue for fiscal year 2005, says Sharmila Shahani, Opsware's marketing and product management VP.

Despite EDS's huge size -- it administers more than 65,000 servers in 154 data centers worldwide -- Shahani says the treatment of this contract is no different from that of any other customer. "Nothing's different in terms of how they're going to be using Opsware. They get our standard product," which they integrate with Computer Associates International Inc. (CA)'s (NYSE: CA) Unicenter, she says.

There's evidence that the companies are still working closely together. EDS, in Plano, Texas, gives Opsware more than money and credibility -- it provides product suggestions, too. EDS suggested key aspects of a feature called Data Center Intelligence, which debuted in fall 2003, and it's a big user of Opsware's patch management tool, according to Shahani.When the new contract ends in March 2008, the extension automatically renews each year for five years, bringing Sunnyvale, Calif.-based Opsware $19 million a year.

The timing of Opsware's announcement is probably not coincidental. Tomorrow the firm will announce second-quarter 2005 results, expected to be revenues of $8.3 million and a loss of 2 cents per share, according to Thomson First Call.

"That's a great deal for Opsware. It ought to make them very attractive," as an acquisition target for Hewlett-Packard Co. (NYSE: HPQ) or IBM Corp. (NYSE: IBM), says analyst Rick Ptak, of Ptak Noel & Associates. Computer Associates or BMC Software Inc. (NYSE: BMC) could also be in the running, although Opsware and founder Marc Andreessen hardly need the money, he feels, noting that Opsware is "kicking butt versus the competition."

EDS officials were not available to comment today.

Evan Koblentz, Senior Editor, Next-Gen Data Center Forum0