EDS outlines fightback plan

EDS is to cut costs, rethink its attitude to big outsourcing deals and work on poorly performing European contracts in an attempt to improve its financial situation.

The company revealed earlier this month that third-quarter earnings would be just a fifth of the expected figure. Since that time EDS shares have dropped by more than half.

In a letter to shareholders EDS chairman and chief executive Dick Brown explained that the past few weeks had been difficult.

"EDS has been buffeted by outside market forces and by the consequences of our own decisions," he said, adding that the firm will cut its costs "to reflect the realities of a market in which growth has substantially slowed, and may remain soft well into next year".

EDS will increase the cross-selling of services within its portfolio, and Brown indicated that management teams in Europe are working on "a small number of financially under-performing accounts" to improve their financial return.

While "selected" large-scale contracts will remain part of the company's strategy, Brown said that "in pursuing all new business, EDS will continue to take into account increased industry sector risks while optimising earnings and cash flow".

Analyst Gartner Group pointed out that EDS' steady stream of client wins may have left its management overconfident.

Gartner analyst Lorrie Scardino suggested that EDS may cut staff on under-performing accounts, and focus more on selling new services than delivering current services.

"Service providers must hold fast to their value proposition and continuously invest in their strategic objectives," he said.

"EDS must significantly grow cross-line-of-business sales and implement EDS-preferred architectural solutions which would yield better prices for clients and higher profit margins for EDS."