EDS Earnings Cut By WorldCom Write-Down

Jul 23, 2002 (08:07 PM EDT)

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EDS is setting up a $101 million reserve to cover payments it no longer expects to receive from bankrupt telco WorldCom. Despite the write-down, EDS on Wednesday still reported net income of $316 million on $5.5 billion in revenue for the quarter ended June 30, compared with $300 million in net income on revenue of $5.1 billion in the same period last year.

Both revenue and earnings were up for the services firm even though contract signings decreased from $7 billion in the second quarter of 2001 to $6.2 billion this year. But chairman and CEO Dick Brown emphasized during a conference call that contracts are being delayed, not canceled.

Revenue from General Motors Corp. decreased 15% year to year, from $775 million to $664 million, reflecting GM's continued reductions in discretionary spending, EDS CFO Jim Daley says. EDS's outsourcing business continues to be its biggest moneymaker, with $3.6 billion in revenue for the quarter. Technology consulting and systems integration revenue was $1.5 billion, while the A.T. Kearney consulting unit posted $307 million and product life-cycle management services brought in $228 million.

EDS signed WorldCom to an 11-year, $6.4 billion IT outsourcing contract in October 1999. The two companies in 1999 also signed a network services agreement, valued at $6 billion and requiring EDS to procure telecommunication network services from WorldCom over 11 years. EDS says it will provide alternate carriers for its customers as necessary.