DALLAS – Looking to slash $3 billion from its expenses, Electronic Data Systems Corp. (EDS) may jettison as many as 20,000 jobs in coming years, chief executive Michael H. Jordan told investors who have turned bearish on the beleaguered technology giant's prospects.
"The next two years, there is going to be a lot of change in EDS," Jordan said Thursday at an analyst conference in New York. "We said we're going to take 20 percent out of our cost structure, which is $3 billion, out. That's the way you do it."
EDS, which operates computer systems for other companies but has struggled with money-losing contracts, a turndown in corporate technology spending and a credit agency downgrade of its debt to junk status.
Last month, a computer system EDS hosted suffered a data glitch, grounding hundreds of flights by AMR Corp.'s (AMR) American Airlines and US Airways Group Inc. (UAIR) — a high-profile embarrassment for a company that has endured several over the past two years.
EDS has already made most of the 5,200 job cuts it announced last year, and has about 120,000 employees remaining, including about 55,000 in the United States, a spokesman said.
Jordan commented about job cuts only briefly in response to a question, and offered few details.
Jeff Baum, a spokesman for Plano, Texas-based EDS, called Jordan's figures an estimate.
"There isn't a hard and fast plan," Baum said in an interview. "That's an estimate, and it ultimately depends on how well we transform the business. It could end up being less than that. We might add people in other places as we bring new business on."
Baum said it was impossible to tell where cuts might be made. He said, however, that the company was likely to grow faster outside the United States than at home.
Jordan has said the company is trying to improve productivity to reduce the cost it charges for its services, making its offers more competitive with rivals such as IBM Corp.
"We need to take $3 billion out of our cost structure. We're a people company, and there is certainly a people component to that," he said.
During the New York conference, EDS officials sought to bolster the company's standing with investors who have sent EDS shares down 20 percent this year. Jordan said the company was making progress at reorganizing its sales force and had improved employee morale.
"The organization was pretty despondent a couple years ago. The company had gone through a lot of dislocation," Jordan said. "And while there is plenty of dislocation to go as we go through as we reengineer the company, I think they've now come to accept the fact that we do have strategy, I think they do believe in the leadership."
Bob Djurdjevic, an analyst with Annex Research, said EDS already has lower operating expenses as a ratio of sales than its five leading rivals and that more layoffs would damage its sales and service groups.
Jordan "has already been cutting into the bone even before these cuts," Djurdjevic said. "Even before this, morale was bad. Now it will be worse because people's jobs will be in jeopardy."
Rod Bourgeois, an analyst who upgraded EDS stock last month, said in an otherwise upbeat note to investors Thursday that EDS' business mix is "generally unattractive." He said EDS faces more competition in its core business of technology services, which isn't growing as fast as in past years.
In the past two months, Moody's Investors Service downgraded EDS debt to junk status. The company slashed its dividend to shore up its balance sheet.
EDS recently held off a challenge by Lockheed Martin Corp. (LMT) to retain a $750 million contract with the U.S. housing agency, and announced improved terms of a big contract with the Navy that has already cost EDS about $1.8 billion because it was a tougher job than the company had expected.
EDS terminated another money-losing contract with Dow Chemical Co., which was snapped up days later by IBM. Revenue is barely growing over last year, and EDS avoided a loss in the April-June quarter only by selling a large software division.
Jordan, who is also chairman, was hired to run EDS in March 2003 to replace Richard Brown. The company is still under investigation by the Securities and Exchange Commission (search) for practices during Brown's tenure.