BPO on Rise at EDS; Cash Flow Falls

Computer services company EDS has been saying business
process outsourcing is its sweet spot for growth as it realigns some of its
business lines and shores up more operating cash.

On Monday, it announced two new BPO deals, but also lowered its cash flow
expectations for the second quarter due to a late payment from a client
currently in bankruptcy.

EDS said MCI, formerly known as WorldCom, which is currently in
bankruptcy reorganization, plans to pay $98 million worth of bills it owes
by July 7, pending approval by a bankruptcy judge. But because EDS had
expected that payment sooner, it said it expects free cash flow to be less
than the $75 million to $125 million it had expected for the second quarter,
which ends today.

However, the Plano, Texas company said it expects its third quarter free
cash guidance to get a boost as a result of the delayed $98 million payment.
In the meantime, its full-year 2003 free cash flow expectations remain the
same, the company said.

The news is part of EDS’s recent announcement of a realignment of its
business, which included a plan to focus on growth in business process
outsourcing contracts as a kind of sweet spot while selling off non-core
assets and business lines. The plan is to help EDS improve its profit
margins as a result of a sharp drop in IT spending during the recent
technology recession.

In one BPO agreement, the Plano, Texas, based EDS has teamed up with
electronic procurement and logistics company World Wide Technology to help
it hire and manage professional contract workers. The five-year contract is
worth about $27 million dollars, EDS said.

EDS’s Business Process division is expected to help WWT find professional
contract workers, help negotiate labor rates, take care of payroll, expense
reports and other administrative duties.

The two companies also plan to huddle on an exclusive arrangement in
which they plan to market a service helping companies hire contractors.
Typical categories would be for technical and information technology,
administrative and clerical, industrial and the medical fields.

Joe Koenig, president of WWT, said offering contract labor as a managed
service would help the company broaden its own portfolio of services.

In a similar BPO deal, EDS signed with real estate management firm Realm
Business Solutions to help the company improve its own rent collection and
property management technology platform.

EDS and the privately held Realm said they planned to combine Realm’s
patent pending rent collection technology platform with EDS’s processing and
bank depository lines. The relationship, the companies said, would enable
Realm to expand its COLLECT rent collection management software, while using
EDS’s check processing services. In the process, both companies plan to open
a new processing facility in El Segundo, Calif., to serve West Coast
markets.

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