Posted on 09/02/2003 4:49:03 PM PDT by mrweb
EDS CEO: Company Will Continue To Cut Costs
NEW YORK (Dow Jones)--Electronic Data Systems Corp. Chief Executive Michael Jordan said the company is having trouble getting new technology services contracts due to its relatively high costs.
Speaking at the Smith Barney Technology Conference here Tuesday, Jordan said EDS had lost its "cost competitiveness" lead to its top rival, International Business Machines Corp. (NYSE:IBM - News) , which has had strong new contract bookings this year. It was a rare tip of the hat from EDS to its fiercest competitor. EDS used to invest in its internal productivity and take other steps to ensure that its costs were competitive in the industry, said Jordan, who took over EDS in March and has been charged with turning it around.
"These are all things we used to do, and we haven't been doing them," Jordan said. "IBM has been doing them better."
Later, he said: "IBM is the market leader. In my mind, they don't do stupid things, and we shouldn't either." Jordan said EDS would continue to cut costs to try to regain its cost competitiveness. While the company said in June it would cut about 2% of its work force, Jordan said Tuesday "we now realize it will be significantly higher than that." He said the final numbers hadn't been worked out.
EDS has already taken several steps to increase its win rate for new service contracts, CEO Jordan said. In July, the company identified its top 50 "must win" contract opportunities, and formed a group of key executives to get these deals "at the price that wins." Also, the company plans to cut its cost of service by 15% to 20%, Jordan said.
As part of the cost cuts, EDS plans to boost its work force in countries where labor is cheap, such as India, continuing the "offshore" trend that has swept through the IT services industry. EDS plans to have 20,000 workers in low-cost countries by the end of 2004, up from 9,000 today, Jordan said. This should help reduce costs to clients by 25%.
Jordan expects these initiatives to begin improving the company's contract win rate by the first quarter of 2004.
EDS also continues to grapple with existing, problematic customer contracts, including a large deal to install a computer system for the U.S. Navy. Jordan said the company's transfer of fully operational workstations to the Navy had been "hampered by logistics problems" and was behind schedule.
Still, the company expected to begin generating positive cash flow from the Navy contract in the second half of 2004, Jordan said.
Shares of EDS closed Tuesday at $22.19, up 36 cents, or 1.6%.
It's going to be a political football during the presidential election - regardless of any action taken by W.
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