EDS Will Emphasize Smaller Deals

The company will increase incentives for sales personnel who sign contracts that bring in cash during 2003, said chief sales officer Stephen M. Smith.

Analysts have criticized EDS for chasing big deals that often carry large startup costs and little immediate revenue.

In particular, a $6.9 billion contract with the Navy and Marine Corps and another deal with a U.K. government social-services agency have drained cash.

Smith acknowledged that many of EDS' sales people "were swinging for the fences." He said more of the sales force would be shifted to pursuing small and medium-sized deals over the next year to 18 months.

"We're not stepping away from megadeals," Smith said. "We're becoming more selective and more precise on how we screen and prioritize large deals with an eye toward free cash flow, capital (costs) and the financial condition of our prospects."

Smith said that instead of competing for at least 90 deals worth more than $250 million in gross revenue apiece, Plano-based EDS would pursue 30 to 50 of them.

Rod Bourgeois, an analyst at Sanford C. Bernstein and Co., who hosted a conference call with Smith on Tuesday, said in a note to clients that he "left the call with a somewhat more favorable view of EDS' current situation."

Bourgeois said EDS' prospects for contract signings appear much better than expectations. But, he warned, EDS faces tough competition from IBM Corp., which beat EDS to enter final negotiations on a $5 billion deal with the J.P. Morgan Chase and Co. bank.

The loss to IBM followed Procter and Gamble Co.'s decision earlier this year to break off talks with EDS on an estimated $8 billion long-term contract to run many of the consumer giant's back-office operations.

Bourgeois also cautioned there are signs that the information-technology outsourcing business has matured and that services of companies like EDS could become a commodity, subject to price-cutting.

EDS shares have fallen by half since the company announced in September that third-quarter earnings would fall far short of expectations because of a downturn in corporate discretionary spending on technology. The Securities and Exchange Commission is looking into events leading to the earnings warning and financial transactions.

Chairman and CEO Richard Brown told employees last month that the company would cut more jobs and might sell underperforming units to raise cash.

In afternoon trading Wednesday, EDS shares rose 75 cents to $18.10 on the New York Stock Exchange.

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