December 20, 2002 2:58 PM PST

Analyst upbeat on human resources deal

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A Prudential Securities analyst on Friday praised Affiliated Computer Services' $650 million, 10-year outsourcing deal with Motorola.

Analyst Bryan Keane said the deal, announced Thursday, helps solidify Affiliated Computer's leadership in the business process outsourcing industry. Business process outsourcing refers to the way one company manages another's tasks, such as accounting, customer service and human resources.

Keane reiterated a "buy" rating on shares of the company.

"In our view, the highlight of the deal is the new combined division, which will explore the vast opportunity in the (human resources business process outsourcing) sector," Keane wrote in a research note. "We believe the commercial (human resources) pipeline is highly robust."

Under terms of the deal, Motorola will shift a substantial part of its human resources system to Affiliated Computer. The payroll processing company will combine those capabilities with its own operations to form a new unit that will offer human resources products and services. Affiliated Computer is hiring about 600 Motorola employees as part of the contract.

Motorola said the arrangement will allow it to cut costs and focus on its core business. The companies expect Affiliated Computer to begin providing services to Motorola during the first quarter of next year. Beginning in 2004, Motorola has the potential to share in the financial performance of the new business unit.

Shares of Affiliated Computer rose $1.76, or 3.5 percent, to close at $51.86 on Friday.

 

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