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
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

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.

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