New EDS Chief To Chart New Course
New EDS Chief To Chart New Course
By Nick Wakeman, Staff Writer
Electronic Data Systems Corp., which recently laid off about 100 employees in the Washington area, will unveil more cost-cutting measures and possibly a new acquisition strategy when its new chief executive takes center stage later this month, analysts said.
Richard Brown, who was named EDS chairman and chief executive Jan. 15, plans to meet with analysts in New York April 29. Brown is expected to discuss first-quarter results and announce additional budget-trimming moves at that
Most of the cuts will be keyed to overhead positions and not operations or services personnel, analysts said. They also expect the former chief of Cable & Wireless plc of London to announce a greater emphasis on electronic commerce and possibly outline a new acquisition strategy.
Brown's arrival at the Plano, Texas-based company, which had 1998 revenue of $16.9 billion, has been greeted with enthusiasm on Wall Street. The system integrator's stock jumped from $49 to a high of $53.13 Feb. 1. Since then, it has traded in the high $40s and closed at $48.69 March 31.
Brown earned a reputation at Cable & Wireless for moving swiftly to achieve cost reductions and pursuing an aggressive acquisition strategy. While there, Brown completed 21 deals in less than three years.
"He has made a lot of deals," said Gregory Gieber, an analyst with the investment company Brown Brothers, Harriman of New York.
Bill Loomis, managing director of the technology research group at investment company Legg Mason Inc. of Baltimore, said acquisitions will be used to build EDS' electronic commerce and Internet capabilities.
Loomis also is looking for EDS to pick up some systems integrators in the $500 million to $1.5 billion range, but said he would be surprised if they turn out to be companies with federal work.
Those types of acquisitions will help EDS replace revenue it is losing as its outsourcing deals with General Motors come to end, Loomis said.
Meanwhile, Brown has wasted little time initiating money-saving moves. He has had managers analyze employees according to the revenue they generated, then group them in quartiles, Loomis said. Employees in the bottom quartile are the ones being targeted for layoffs, he said. "The idea is to pay for performance."
The employees laid off by EDS last month worked in support areas such as human resources, payroll and the legal department, said company spokesman Randy Dove. "People directly serving customers were not affected," he said.
EDS, which has about 4,500 employees in the Washington area, still has several hundred job openings for information technology professionals, Dove said. "If the folks being affected by the layoffs have the technical skills that match an opening, they can go after it," he said.
The company's government unit, which has enjoyed some recent successes, already had taken steps to reduce costs before Brown's arrival, said Thomas Browne Jr., an analyst with Prudential Securities in New York.
Getting out of the PC reselling business last year was important step, he said. "The impact of the cuts [in the government unit] may be less than in other areas," Browne said.
EDS' Government Industry Group recently was selected to begin negotiations on an outsourcing deal with the state of Connecticut that could be worth $1 billion. The contract calls for EDS to run the state's IT services.
"The state and local IT market is very robust and has very favorable growth trends," Loomis said. "The federal market is not as robust, but it is not contracting."
When Richard Brown joined EDS, the company already was in the midst of its February outsourcing deal with MCI Worldcom Inc. of Jackson, Miss., that included EDS' acquisition of MCI Systemhouse, an Ottawa-based integrator.
Brown's biggest challenge will be changing EDS' culture, Gieber said. "This is a people business, so altering the culture is much more difficult than in a manufacturing industry," he said.
EDS has a reputation of having "rather bright programmers who also are rather arrogant," Gieber said. "If he can shake that arrogance out of them and make them more client focused, he has a lot of good potential there."