Electronic Data Systems Corp. (EDS) ended its 2002 third fiscal quarter with earnings and revenue that exceeded revised expectations but fell way below original forecasts for the quarter, the company announced Wednesday.
EDS also said it will reduce its workforce by 3 per cent to 4 per cent through layoffs and attrition in the coming quarters, as it struggles with sagging sales. The company, based in Plano, Tex., currently has 138,000 employees worldwide, so a 4 per cent reduction would mean zapping about 5,520 jobs.
The first wave of cuts will happen before the end of this year, when EDS, the world’s second largest provider of IT services, expects to eliminate between 800 and 1,000 jobs.
The company closed the quarter, which ended Sept. 30, with net income of US$86 million, or US$0.18 per share. The company had originally expected to earn US$0.74 per share, but it revised that figure down dramatically to a range of US$0.12 to US$0.15 in mid-September, citing slowing sales and other factors.
Revenue for the quarter came in at US$5.41 billion, within the revised range but below original expectations of between US$5.8 billion and US$5.9 billion.
Company officials said they were deeply disappointed with this year’s the third quarter results.
“There’s no sugar-coating these results. They’re the by-product of a very difficult market and of our own decisions,” said Dick Brown, the company’s chairman and chief executive officer, during a conference call held Wednesday afternoon to discuss the results.
EDS blamed the quarter’s shortfall on weak new sales and slow growth on existing contracts due to a reduction in clients’ discretionary spending, particularly in Europe. It also cited increased internal spending to bolster its sales team; asset writedowns related to the US Airways Group Inc. bankruptcy in August, and asset writedowns in other lines of business, among other things.
In addition to the job cuts, EDS will also reduce costs by cutting overhead expenses by US$75 million next year and divesting itself of what it called several “non-core, non-strategic assets,” which should yield over US$500 million in cash over the coming 6 to 8 months. It also plans to shift at least 1,500 positions from application development teams and client contact centres to low-cost “solutions” centres in 2003. The cost-cutting measures will not affect the quality of services, Brown insisted.
EDS signed US$3 billion worth of contracts, down from US$6.8 billion in the same quarter last year.
EDS sees no recovery in discretionary spending until at least the second half of 2003, Brown said. The company will go after growing markets, such as hosting services, desktop services and technology consulting, Brown added.