EDS profit falls on weak IT spending

Computer services giant Electronic Data Systems beat analyst expectations in its fourh quarter - but its revenue and earnings were down on this time last year and there's mot much optimism about the year ahead.

The company reported a fourth-quarter net income of $360m, or 75 cents per share, compared with a net income of $405m, or 82 cents per share, during the same period of 2001.

Fourth quarter total revenue decreased five per cent to $5.507bn versus $5.801bn in the year-ago period. The revenue figure beat analysts' expectation of $5.475bn, according to a survey by First Call.

Richard Brown, chief executive of EDS: "Market conditions in the (information technology) services sector remained challenging in the fourth quarter as companies continued to limit discretionary spending. However, we continued to win business, improve our free cash flow, and build on our record of service excellence."

Citing "continued weakness in technology spending and the general economy," the company projected its rate of revenue growth - excluding acquisitions and divestitures and its General Motors business - to be in the low to midsingle digits in 2003. EDS said it expects its General Motors business to decline this year at a per centage rate in the midteens to low-twenties. EDS' General Motors business took in $662m in the fourth quarter, about 12 per cent of the company's overall revenue.

EDS also said its revenue for the first quarter, excluding acquisitions and divestitures and its General Motors business, would fall at a per centage rate in the low to midsingle digits.

The company's results suggest it is losing ground to rival IBM. Fourth-quarter revenue at IBM's global services unit rose 17 per cent year over year to $10.6bn, thanks largely to Big Blue's acquisition of consulting and technology services company PwC Consulting last year. IBM's global services unit signed more than $18bn in new business contracts in the fourth quarter. EDS said it signed $8.1bn in contracts in the fourth quarter, down from $10.1bn a year ago.

A recent report from research firm Gartner said that IBM is leading the fight to snag "megadeals" - IT services contracts worth $1bn or more. IBM won seven of the 14 megadeals awarded in 2002, and shared an eighth deal with Keane, Gartner said. Computer Sciences landed one megadeal, and EDS won two deals.

It's been a tough several months for EDS, which provides services such as software development and support, technology consulting and information technology outsourcing. EDS' stock tanked in the fall after the company forecast third-quarter earnings well below expectations. In October, EDS said it was the subject of a Securities and Exchange Commission probe into its stock-hedging efforts and the events leading up to the company's reduced earnings forecast. On Jan. 17, EDS said the SEC's informal inquiry had become a formal investigation.