- The Washington Times - Sunday, February 20, 2005

PLANO, Texas (AP) — Electronic Data Systems Corp. has spent two years bailing water and patching leaks that threatened to sink the company, and executives say better days are just ahead.

They are slowing the loss of cash from bad deals, sprucing up EDS’ technology and trying to expand from running other companies’ computers into more-lucrative businesses.

“The company has made the turn at the end of ‘04,” said Michael H. Jordan, the chief executive who arrived in early 2003. “Our major problems that dogged us for the last couple years are essentially behind us.”

Tomorrow, EDS executives will meet with Wall Street analysts in New York, the first stop on a roadshow designed to convince investors that they can grow a company that has been shrinking since 2003.

Many analysts sympathize with Mr. Jordan, who inherited a company that was so weak it was widely rumored to be a takeover target. They don’t share his sunny outlook, however.

“Parts of the business have been stabilized, but I don’t think they’re ready to grow yet,” said Cynthia Houlton, an analyst with RBC Capital Markets investment bank. “We’re still seeing revenues decline. They need to focus on profits, not growth.”

On average, analysts predict that EDS’ revenue will shrink more than 2 percent this year and keep declining through 2007. They say the company must slash costs and shift more work to India — where EDS already has about 3,000 workers — to improve profits.

EDS’ fundamental problem is that the computer-services industry it created in the 1960s has become crowded with rivals such as IBM Corp., Accenture Ltd., Hewlett-Packard Co. and smaller imitators. That has created a buyer’s market for computer services, 60 percent of EDS’ business.

Plano, Texas-based EDS expects word any day on whether it has won a multibillion-dollar contract to run computers for Britain’s Ministry of Defense. A win would be a welcome financial and morale boost, but EDS is considered an underdog to Computer Sciences Corp. because of EDS’ problems on other British contracts and with similar work for the U.S. Navy.

The next-largest piece of EDS, about 20 percent of revenue, is managing software applications for businesses. There, too, EDS faces growing competition, especially from low-cost providers in India who have driven down prices.

Mr. Jordan’s response has been to cut costs by hacking jobs — and suggesting cutting 20,000 more — and to diversify.

EDS has struck alliances with powerful partners including Microsoft Corp., Dell Inc. and Cisco Systems Inc. to sell each other’s goods and services.

Mr. Jordan also has targeted the growing space of running back-office functions such as finance and accounting for other companies, called business-process outsourcing or BPO. Last month, EDS paid $420 million for the health care BPO business of consultant Towers Perrin.

EDS lost $1.7 billion in 2003, much of it from writing down the value of its work for the Navy and Marine Corps. Losses from the deal, called NMCI, slowed last year, and EDS earned $158 million despite a 4 percent drop in revenue.

“They may have settled the NMCI problem, but now they’ve got another crop of issues to contend with,” said David Garrity, an analyst with the investment bank Caris & Co. “It’s a Rubik’s cube.”

Mr. Garrity said one of the most immediate challenges is holding on to its biggest customer, General Motors Corp., which once owned EDS. GM accounted for $1.96 billion, or 9.5 percent, of EDS revenue in 2004, but the contract is up for bidding next year.

Mr. Jordan said he expects to keep most of GM’s business, but analysts say EDS could lose two-thirds to three-quarters of it. They say that GM, like other customers, will prefer to split up its technology work among several vendors.

EDS also has struggled to sign new customers. Fourth-quarter signings were nearly one-third below the company’s own forecast, an ominous sign for future revenue.

There are hopeful signs. After losing Medicaid contracts in Texas, Michigan and Georgia, EDS has won five of the past six Medicaid contracts it has bid for and is appealing the lone loss.

The company has been embarrassed in the past year by a glitch in a system it ran that tied up hundreds of flights on American Airlines and US Airways last summer, delays in reporting financial results, and the downgrading of its debt to junk status. Its shares have been essentially flat for the past year, closing at $19.99 Friday on the New York Stock Exchange, trading between $15 and $24 since early last year.

EDS just hired a new advertising agency to improve its image beginning this spring.


Copyright © 2019 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.

 

Click to Read More and View Comments

Click to Hide