EDS: A Cautionary Tale for Tech Giants

Strategic Insights -

Electronic Data Systems, once a leader in the computer services market, has seen its fortunes decline over the past 18 months due to a combination of factors. A shocking profits warning in September 2002, resulting from over-estimated future performance, led to a share price decline of over 50%. Further setbacks came in the form of accounting problems, which led to a formal investigation by the SEC and the departure of CEO Dick Brown in March 2003. The company's financial woes were exacerbated by a flawed business strategy, including the practice of underbidding on tenders and poor contract management.

Key Takeaways:

  • EDS's profits warning in September 2002 led to a share price decline of over 50% due to over-estimated future performance.
  • The company faced a formal investigation by the SEC and took a $2.24 billion charge due to accounting issues related to long-running contracts.
  • EDS's flawed business strategy, including underbidding on tenders and poor contract management, led to performance issues and the loss of high-profile contracts.
  • The company's turnaround specialist, Michael Jordan, is attempting to revitalize EDS by selling non-core business groups, offshore operations, and boosting business consulting.
  • Analysts remain optimistic about EDS's future, citing the company's potential for growth and its ability to learn from past mistakes.

Statistics:

  • EDS's share price declined by over 50% in 2002 due to the profits warning.
  • The company took a $2.24 billion charge due to accounting issues related to long-running contracts.
  • EDS paid out $225 million due to the failed derivatives hedging strategy.
  • The company has 130,000 employees and 40 years of history.

Sources:

  • Fiona Harvey, Electronic Data Systems still ranks a strong second place in the computer services market but its woes over the past 18 months have dragged down profits
  • Lorrie Scardino, research director at Gartner
  • Khalid Irshad, senior analyst at IDC
  • Michael Jordan, turnaround specialist at EDS
  • Electronic Data Systems SEC filings
  • Gartner research reports
  • IDC research reports