EDS issues shock profits warning

19 September 2002 Services giant Electronic Data Systems (EDS) said it expects to report a slump in revenues and net income for its third financial quarter of 2002.

The news sent shock waves through the IT sector because EDS, the world’s second largest services company behind IBM Global Services, has so far managed to record strong revenue growth throughout the downturn in IT spending. This has been attributed to an increasing number of organisations outsourcing their IT operations in a bid to cut costs.

For the quarter to the end of September, EDS said it expected revenues of between $5.3 billion (€5.4bn) and $5.5 billion (€5.6bn). This is up to $600 million (€611.6m) below initial forecasts and compares with revenues of $5.6 billion (€5.7bn) reported in the same period a year earlier.

Its net income figures could be far worse. EDS said they could fall to between $58 million (€59.1m) and $74 million (€75.4m), compared to an earlier forecast of $364 million (€371m). “I am deeply disappointed with our results for the quarter. The unexpected severity of the global slowdown in corporate spending, especially in the past two months, far exceeded our expectations,” said EDS CEO Dick Brown.

He added that EDS’s results had been particularly affected by the bankruptcy of one of its major clients, US Airways, as well as “the adverse financial performance of certain European contracts”. The company was also a major services provider to bankrupt telecoms giant WorldCom.

EDS, which will announce its results on 30 October 2002, said it expected the “market softness” to continue for the remainder of 2002 and into next year.

The announcement caused its shares to plunge by a third yesterday, reducing its market capitalisation by more than $6 billion (€6.1bn) compared to the closing price on the previous day.

Meanwhile, in a further sign that companies are spending less on IT, database giant Oracle reported another disappointing set of figures in its first quarter of fiscal 2003 to the end of August. The database company reported revenues of $2 billion (€2bn), down a tenth from the $2.3 billion (€2.35bn) reported in the same period a year earlier.

Oracle is struggling to sell new licences of both its database and applications software. In its latest quarter, new licence sales fell to $549 million (€560m), down 23% compared to the same period a year earlier.

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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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