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EDS expects sharp earnings drop for third-quarter

Electronic Data Systems (EDS), the world's second-largest provider of IT services, announced it will report earnings below its expectations for its third financial quarter.

EDS expected to post earnings per share in the 12 cents to 15 cents range instead of the 74 cents it had previously forecast for this quarter, which ends 30 September. Net income is now expected to be between $58m (£37m) and $74m (£48m) instead of the previously expected $364m.

Third-quarter revenue is expected to be between $5.3bn (£3.4bn) and $5.5bn (£3.5bn), instead of the previously expected $5.8bn to $5.9bn, the company said.

EDS is blaming the poor forecast on tough economic conditions globally, sagging new sales and lower growth on existing contracts as clients spend less, particularly in Europe.

It also cited increased internal spending to bolster its sales team; asset write-downs related to the US Airways Group bankruptcy in August, and asset write-downs in other lines of business such as the company's magazine subscription fulfillment unit, among other things.

"These are not the results you've come to expect from EDS; it's not the type of news we're used to delivering, at all," EDS chief executive officer and chairman Dick Brown said.

"We were more optimistic than we should have been relative to our ability to fight our way through a tough economy," he said. "We expected our clients' discretionary spending to tighten, not virtually stop."

The year has been a tough one so far for EDS. It has dealt with delays, technical problems and close monitoring from Congress of its multibillion dollar US Navy outsourcing contract.

It has also fielded questions about its accounting practices and faced problems stemming from its business dealings with bankrupt WorldCom. EDS missed analysts' earnings-per-share expectations in the second quarter by 12 cents, primarily because of WorldCom-related reserves and write-downs.

The company expects the problems to last into 2003.

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