EDS Chief: Discretionary IT spending has virtually stopped

Electronic Data Systems

EDS now expects to earn 12 cents to 15 cents per share instead of 74 cents per share in the quarter ending this month.

In the fourth quarter, it forecasts profit of 57 cents to 59 cents per share instead of the 88 cents per share expectation of analysts.

Chairman and chief executive Richard H. Brown blamed EDS' problems largely on a downturn in discretionary technology spending by corporations, and he predicted weakness in the computer-services industry will continue into next year.

Brown also apologized for bullish remarks to analysts last month.

"Frankly, we were more optimistic than we should have been relative to our ability to fight our way through a tough economy," Brown said during a conference call with analysts. "We expected our clients' discretionary spending to tighten; not virtually stop."

EDS revised its forecast Wednesday afternoon. In Thursday morning trading, EDS shares fell $15.86 to $20.60--down 72 percent from its 52-week high of $72.45.

EDS said third-quarter revenue would be $5.3 billion to $5.5 billion--a decline of 2 percent to 5 percent from last year, instead of the company's previously projected 4 percent to 6 percent increase.

It said fourth fourth-quarter sales also would miss analysts expectations.

The company now expects to earn $2.05 per share to $2.10 per share for all of 2002. Analysts surveyed by Thomson First Call had expected $2.97 per share.

EDS, which manages corporate and government computer systems, said third-quarter earnings would fall 25 cents to 28 cents per share because of weakness in high-margin discretionary spending; 14 cents per share because it wrote down the value of airplane leases to US Airways, a major client that has filed for bankruptcy protection; another 14 cents per share due to poor performance of some contracts, mostly in Europe; and 8 cents per share by its exit from the subscription-fulfillment business.

The company said its extra expenses related to the bankruptcy of another major customer, WorldCom, would not be as great as feared, 2 cents per share instead of 4 cents per share in the third quarter.

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