EDS Stays Cautious on IT Outlook

Computer services giant Electronic Data Systems said it remains “very guarded” with its outlook for 2003, noting continued weakness in IT spending among enterprises and the uncertainties associated with a possible war with Iraq.

During its fourth quarter and year-end results, EDS pointed to “potential for increasing geopolitical risk” and general weakness in the economy as it flagged cautious guidance for the unfolding year.

“Market conditions in the IT services sector remained challenging in the fourth quarter as companies continued to limit discretionary spending,” said Dick Brown, chairman and CEO, in a discussion about the earnings results.

Its profit slipped by 11 percent to $360 million, (75 cents per share), compared to a profit of $405 million (82 cents per share), in the same time last year.

Fourth quarter revenues for the Plano, Texas, outsourcer fell by 5 percent to $5.5 billion, compared to $5.8 billion in the same year-ago quarter.

The company said it expects to take in cash earnings (or earnings before income taxes, depreciation and amortization) of between $700 million and $900 million in the year, backing off from the $1 billion in cash earnings it called for in prior guidance. It also lowered its earnings estimates to about $1.80 to $2 a share, down from the $2.04 that analysts had expected.

EDS’s results were also impacted by the cost of exiting and selling off some of its non-core business lines, such as its Consumer Network Services (CNS) business, and its subscription fulfillment business in the fourth quarter.

The results also suggest that in the race to capture outsourcing mega-deals, rival IBM has been pulling ahead. EDS said its fourth quarter contract signings were $8.1 billion versus $10.1 billion a year ago.

Just yesterday, IBM announced it won a major integration contract with Ford Motor Company in connection with Dassault Systemes SA.

But EDS pushed back on the news, pointing out in its own press release that “Ford has not only confirmed, but also expanded,” its use of EDS software and products, with over 50,000 seats of EDS’s technology in ongoing usage.

The company said its major contract with the US Navy, which is worth an estimated $6.9 billion, is expected to begin generating cash by the fourth quarter of 2003.

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