EDS: We're not for sale
- By Michael Hardy
- Jun 23, 2003
NMCI Web site
EDS, struggling to right itself despite losing millions of dollars from the Navy Marine Corps Intranet project and other contracts, last week outlined its plan for recovery and dismissed rumors that it could be sold.
However, although company officials at the analyst meeting in New York laid out initial steps, they offered few concrete details. And some still believe the company could be sold off, probably piecemeal, despite reassurances.
The $8.8 billion NMCI contract is costing EDS serious money. Michael Jordan, the company's chief executive officer and chairman, said NMCI and a few other contracts have been a "huge strain on the balance sheet." NMCI alone accounted for a $334 million loss in the quarter that ended March 31. Balancing the contract with the company's other operations led to a $126 million net loss for the quarter.
Jordan and EDS chief financial officer Bob Swan said they expect the money drain to ease during the next year. The research and design work for NMCI is largely done, so the project's expenses should fall sharply now, Swan said.
Meanwhile, the company has identified the weaknesses common to its problem contracts. They include insufficient reviews and pressure to close deals, he said. EDS is addressing that by requiring high-ranking company officials to approve contract changes, and by developing standard contract language for key provisions.
EDS officials also plan to revamp the company's European operations, strengthen its business process outsourcing and business transformation services offerings to diversify its portfolio, and take other measures to strengthen its position.
Jordan addressed persistent rumors that the company is on the auction block. "Obviously that [speculation has] been a popular indoor sport and outdoor sport," he said. "If you look at EDS' position on the game board of a consolidating technology industry, there is probably not a real tremendous value added for somebody in that arena to buy EDS."
The problem with EDS' proposed solutions is that they don't address its current problems, nor did officials offer much meat for the skeleton, said analyst Stan Lepeak, a vice president at META Group Inc.
"I wasn't overly impressed with the whole message," he said. "This was supposed to be a new strategy, and the strategy was 'we won't screw up anymore.' What they said in terms of improving risk management and their due diligence, that's great, but it's after the fact. It doesn't help at all."
Despite Jordan's assurances, EDS is a possible takeover target, Lepeak said. He pointed to Jordan's history — as CEO of Westinghouse Electric Corp. in the mid-1990s, Jordan oversaw its acquisition of CBS Broadcasting Inc. and its ultimate demise, subsumed into the broadcasting company.