Depressed spending hits EDS and CSC

7 February 2003 IT services giant EDS is taking “a very guarded view of growth in 2003”, after reporting a 5% dip in sales for its 2002 fiscal year.

Revenues at the company, the world’s second largest IT services company after IBM Global Services, fell to $5.51 billion (€5.1bn), from $5.8 billion (€5.48bn) in 2001. Net income, meanwhile, fell 11% to $360 million (€333.7m), compared to profits of $405 million (375.4m) in 2001.

EDS CEO Richard Brown blamed the disappointing results on depressed technology spending. “Market conditions in the [IT] services sector remained challenging in the fourth quarter as companies continued to limit discretionary spending,” he said.

In addition to general market conditions, EDS faces a number of challenges specific to its business. The company expects revenues from former parent General Motors, which accounted for some 12% of EDS’ overall revenue, to decline this year at a percentage rate in “the mid-teens to low-twenties”.

EDS also faces possible hits from large contracts with former customers WorldCom and US Airways, both in Chapter 11 bankruptcy protection. Both contracts could be further reduced — or cancelled entirely — by ongoing bankruptcy proceedings. In addition, EDS itself is the subject of an ongoing investigation into its finances by the US Securities and Exchange Commission.

EDS has lost much ground to rival IBM Global Services in recent months. IBM signed more than $18 billion (€16.69bn) in new business contracts in its fourth quarter, while EDS singed just $8.1 billion (€7.51bn), compared to $10.1 billion (€9.36bn) in the fourth quarter of 2001.

According to a recent report from analysts at Gartner, IBM won seven of the 14 so-called ‘mega deals’ – multi-million dollar, multi-year outsourcing contracts – awarded in 2002, and shared an eighth deal with Keane. EDS won two deals and Computer Sciences Corp (CSC) won one.

CSC managed to boost its profits in its fiscal third quarter – but also saw revenues fall as customers trimmed spending. “The decision cycle continues to be elongated,” said CSC’s CEO Van Honeycutt.

Profits rose to $105.7 million (€98m) in the third quarter, from $87.1 million (€80.7m) a year earlier. Sales, however, fell 3% to $2.79 billion (€2.59bn) from $2.89 billion (€2.68bn). Sales from government contracts rose by 7%, but this was mirrored by a 7% drop in business from corporate customers – which make up around 71% of CSC’s overall revenue.

CSC continues to chase two large outsourcing contracts – with the German Army and British mail delivery service Consignia – that have been in negotiation since 2002.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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