RealTime IT News

EDS Re-engineers Itself

EDS on Wednesday announced a new business strategy plan to stabilize and re-invigorate its core IT outsourcing business including taking measures to tap into the burgeoning market for business process outsourcing (BPO) services.

The move comes less than six months after Plano, Texas-based IT services giant fired its its Chairman and Chief Executive Richard Brown and installed a seasoned veteran Michael Jordan as the replacement. But since his arrival, EDS's stock has never been able to recover from a bleak outlook announced in September 2002. At that time, the company disclosed plans to trim 5,600 jobs from its workforce.

Speaking to securities and industry analysts here today, Jordan announced plans designed to improve EDS's competitiveness as well as address its cost structure, including additional layoffs of about 2 percent, or 2,700 jobs, from its workforce. EDS also said it expects second-quarter earnings of 33-38 cents per share -- in line with analysts' consensus view of 34 cents, on revenue of $5.4 billion to $5.6 billion and free cash flow of $75 million to $125 million.

Under the plan, EDS said it will pursue three priorities: 1) stabilize and grow its core IT outsourcing business; 2) evolve a broader business footprint by investing in new growth opportunities, such as additional capabilities in business process outsourcing (BPO) services; and 3) strengthen its balance sheet and liquidity position.

The cost-cutting and realignment measures will result in pretax restructuring charges and asset write-downs totaling $425 million to $475 million in 2003, equivalent to an after-tax impact of 58-64 cents per share -- a portion of which may be recognized in the current quarter.

EDS's renewed BPO focus comes at a time when IT executives like CIOs and CTOs become increasingly aligned with Corporate America's senior management. Recently companies like Unisys through its "Blue-printing" strategy and Hewlett-Packard with its "Adaptive Enterprise" plan have been taking steps to tap into the BPO market. Today EDS chimed in by stating that it will target its business transformation service offerings to upsell its client base and expand into the $200 billion BPO market.

"We're targeting today's business-oriented CIO who typically has deep operational experience, including profit and loss responsibility," said Jordan. "We're taking steps to position EDS as the services provider of choice for business leaders looking to extract the highest returns on IT investments."

Jordan said EDS will recast itself from multiple lines of business into a unified information-technology outsourcing business, focused on IT outsourcing (comprising mainframe, systems-integration, data-center, help-desk and desktop outsourcing services) and application maintenance and development. These core services account for approximately 80 percent of EDS' current annual revenue.

EDS' A.T. Kearney and Product Lifecycle Management (PLM) Solutions units will continue to operate as separate businesses.