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  EDS yesterday reported its latest quarterly results, most notable for a plunge in profits, stagnant revenues and a weak order book.
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Shares were actually up on the news, reflecting analysts’ concerns that the results might have been worse still.

Revenue picture shows mixed fortunes

EDS’s quarterly revenues rose 2% to $5.52bn on the previous year’s quarter (though down 3% on a constant currency basis). Overall, modest improvements in IT and business process outsourcing revenues were offset by a continuing decline in GM revenues and the impact of a number of under-performing contracts.

Most worrying going forwards – at a time when consulting and outsourcing competitors have been reporting improving order books – EDS reported it has signed only $3.4bn in contracts in Q2, vs $6.2bn a year ago. EDS blamed the poor order book on a “tepid IT spending environment” but the reality is it has been losing ground to IBM and HP, who are aggressively targetting the market at a time that EDS has been focussed on a strategic review and restructuring exercise.

The picture is no prettier when consulting is taken in isolation. Solutions Consulting revenues at EDS decreased 13%, at constant currency, from the year-ago quarter to $1.31bn. In top-end consulting, EDS’s consulting business A.T. Kearney saw revenues decrease 27% (constant currency) compared with a year ago to $212m.

Tackling the collapse in net income

Overall, the stagnant revenue situation translated into a collapse in net income for the quarter from $316m a year ago to $138m this quarter. Further redundancies and a drive to move more operations to cheaper offshore locations now look to be on the cards. Analysts may also resurrect suggestions that EDS divest the A.T. Kearney business to concentrate on its core business.

For the full press release and conference call, go to:
http://www.eds.com/news/news_release_template.shtml?rowid=3432

***********

In the UK, some positive news at least for EDS. The Inland Revenue has shortlisted two bidders in the race for the £billion Aspire IT services contract – due to be awarded before the end of the year. And EDS remains in the running.

The consortium headed by BT (encompassing CSC and SchlumbergerSema) has been dropped, leaving rival consortia bids from Cap Gemini Ernst & Young / Fujitsu and incumbents EDS / Accenture as the only remaining contenders.
 
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