EDS hones its outsourcing focus

So far today, Wall Street is smiling at EDS Corp.'s plans for a facelift.

The Plano, Texas, information technology company this morning announced a restructuring that will pare its work force by 2 percent, some 2,600 jobs, wipe out "redundant functions and duplicative processes" and sharpen its focus on outsourcing.

EDS estimates pretax savings of $230 million from the moves, the boldest to date from new chief executive officer Michael Jordan, but they will require charges of $425 million to $475 million (58 cents to 64 cents a share) in this quarter.

Shares of EDS were up more than 8 percent in midday trading on the New York Stock Exchange.

Jordan, in a morning conference with investment analysts, said EDS will hone its "core services," including systems integration, mainframe, data-center and help-desk work, that now account for 80 percent of its annual revenue of more than $21 billion.

EDS wants to grow its work in business-process outsourcing.

"We're taking steps to position EDS as the services provider of choice for business leaders looking to extract the highest return on IT investments," Jordan said in a statement.

The company is sticking with earlier projections for earnings this quarter of 33 cents to 38 cents a share. For 2004, it projects revenues between $20 billion and $21 billion. Government contracts provide about 20 percent of the company's work.

The shift comes as EDS tries to maintain its footing in a shifting economy and sluggish spending by corporations for information technology; two of its big clients, WorldCom and USAirways, were in bankruptcy court. Jordan was hired following the firing of CEO Richard H. Brown in March.

Its work on the Navy-Marine Corps Intranet is being closely watched. The company wrote off $330 million to cover NMCI losses but in remarks yesterday at a conference in New Orleans, Albert Edmonds, the president of EDS Government Solutions, said the company is unequivocally committed to seeing the seven-year program to completion.

"You need a really, really, really thick skin," Edmonds said.

Post Newsweek Tech Media's Thomas R. Temin contributed to this update.