EDS announces revenue crisis

Electronic Data Systems, the US IT outsourcing giant, has announced a sharp fall in revenue that it has warned could grow in 2003.

Speaking in a conference call earlier this week, Dick Brown, EDS's Chairman, told shareholders: "This is not the kind of announcement EDS is used to making. Our revenue growth is significantly lower than expected and the slow global economy has hit us with a force that was unexpected."

The company said it expects to report total revenue of approximately $5.3-$5.5 billion, down two to five per cent from the $5.6 billion it reported a year ago.

Total revenue was expected to increase four to six per cent in the company's third quarter. Earnings per share are now expected to be 12-15 cents where previously they were estimated at 74 cents a share.

One of the factors cited by EDS for the lowered earnings estimate is the financial performance of certain contracts in Europe.

Mr Brown said: "The performance of several European contracts had a notable impact on the shortfall. It's a dramatic challenge, but we're actively addressing it.

"We expected discretionary spending by clients to continue, not virtually stop and we're hoping this revenue situation won't run through 2003."

EDS's European contracts include several large agreements to supply IT services to UK Government departments.

The company holds the largest Government contract to supply IT services of its kind, worth £2.8 billion, to the Inland Revenue.

EDS's contract with the Revenue has attracted heavy criticism following a series of IT failures.

The company recently had to withdraw the Revenue's online self-assessment service after customers reported they were able to access financial data that had been filed by other users.

Nick Montagu, Chairman of the Inland Revenue, was also recently forced to deny allegations in the press that a new 10-year, £4 billion contract to supply IT services to the Department was 'an open and shut competition' tipped towards EDS.