Electronic Data Systems Corp. (EDS) will cut 2,000 jobs, or about 1.4 percent of its workforce, a move due to a spending slowdown and unrelated to the IT services provider's relationship with WorldCom Inc., EDS executives said Tuesday during a conference call.
"It's related to contracts, and some of our clients have pulled back spending -- you all know that -- and we have to adjust our (work)force to workloads and that's what this is about," said Dick Brown, the company's chairman and chief executive officer, during the call with financial analysts, which was broadcast over the Web.
The price of EDS' stock has dropped significantly since WorldCom announced last week it had discovered billions in accounting irregularities and that it would restate its financial results for 2001 and the first quarter of 2002.
EDS' stock (EDS) closed at US$46.63 on Tuesday June 25, before WorldCom made its announcement later that day. It has dropped steadily since then, closing Monday at $30.45. It stood at $29.30, down 3.77 percent, in midafternoon trading Tuesday.
WorldCom awarded an 11-year, $6.4 billion IT outsourcing contract to EDS in October 1999. EDS expects WorldCom to contribute between $160 million and $175 million in revenue and $0.03 to $0.04 of earnings per share in each of the last two quarters of 2002.
Also in 1999, EDS, based in Plano, Texas, chose WorldCom as a provider of telecommunication network services under an 11-year, $6 billion contract.
Wall Street's concerns center on the possibility that, depending on WorldCom's fate, EDS may not reap the expected revenue from the IT outsourcing contract and that the services WorldCom provides to EDS may be affected.
As the company has been doing for the past week, Brown once again tried to calm those concerns on Tuesday's call.
"We expect our relationship with WorldCom to continue, and we've made it clear we can manage any exposures if problems do develop," he said.
The EDS layoffs will affect mostly employees in North America and "across the board" in terms of the types of jobs, Brown said, adding that "this action has absolutely nothing to do with our relationship with WorldCom."
"We're still hiring people in various accounts and markets for specialties," Brown said. "An adjustment of 2,000 people -- I don't like it. None of us like it. (But) it's the kind of practice we've had ongoing. When you have a 140,000 (employee) base, there's where we are."
This round of layoffs isn't an extraordinary measure, Brown said. "It's the same kind of action we've taken in the past and will likely take in the future. This is not unusual for our business."
EDS' decision Monday to end discussions with Procter & Gamble Co. over a possible outsourcing contract isn't related either to WorldCom's woes, Brown said.
"It was not an easy decision to make. We hold P&G in the highest regard and had worked very hard over many months to win this piece of business, but at the end of the day, the financial model, especially related to the acquisition cost, simply didn't make financial sense as structured for EDS, and we withdrew," he said.
"There are those who would link this decision to the WorldCom events and to general market conditions. That is simply not the case. We're making the same financial decisions we would have made at any given point in time," Brown said.