Electronic Data Systems (EDS) plans to lay off between 15,000 and 20,000 employees over the next two years as part of an effort to cut $3bn (£1.7bn) in costs.
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These layoffs would come on top of about 5,000 jobs EDS has cut over the past year, said the company's chairman and chief executive officer Michael Jordan, speaking at the Smith Barney Citigroup 2004 Technology Conference in New York.
"Over the next two years there will be a lot of change at EDS. We said we're going to take 20% off our cost structure which is $3bn out, and that's the way you do it."
Clearly, EDS plans, at least in the short run, to be a smaller company, and the big question mark is whether this will erode the quality of its services, said Andrew Efstathiou, a Yankee Group analyst. Therefore, clients must be very vigilant about service quality as EDS downsizes, he said.
"EDS has an excellent service delivery capability in place and these layoffs, if done improperly, are going to adversely impact this delivery capability. If done effectively, they'll reduce costs but also limit somewhat the scope of services EDS can offer."
Compounding the matter is that EDS' performance at generating new business has been disappointing, so that, lacking a new-sales boost, the company is being forced to focus more on cutting costs to improve its financial condition, he said.
This means carrying out a strategy that includes divestitures, such as the recent sale of its UGS PLM Solutions unit, moving operations offshore and, of course, trimming the payroll, Efstathiou said.
"Generating new sales hasn't been successful for them so far. That's not what's moving the company forward. They've generated some new sales, but most [revenue] has come from signing existing customers to renewals and signing extensions of existing business. But new-sales performance hasn't been strong. It certainly hasn't been what they would have hoped for."
When EDS announced in July that it had signed $4bn in contracts in the second quarter, up 25% from $3.2bn in last year's second quarter, it said that this reflected "sales growth from existing accounts and strong renewals".
The turmoil at EDS over the past two years or so has harmed employee morale, and it does not help to hear the company's chief executive say that significant layoffs are coming, Efstathiou said.
Jordan's comments are in line with the company's overall efforts to reduce its costs over the next 24 months to 36 months, said Liz Bonet, an EDS spokeswoman. Regarding the projected job cuts, the numbers Jordan provided are an estimate, not a target, Bonet said.
As such, this estimate could be modified and depends on how EDS' business transformation proceeds as it improves productivity and increases new-contract signings, Bonet said. EDS currently has about 120,000 employees, she said.
In addition to layoffs, EDS plans to lower costs through two other areas. First, by improving its supply chain and purchasing process, and second, by improving its capacity management, which involves the global consolidation of service-delivery facilities such as data centers and call centres.
Juan Carlos Perez writes for IDG News Service