SERVICES

Analysis of Electronic Data Systems 1999 Business Results

A Real 4Q Slam-Dunk!

EDS Forsakes Stock Buybacks after Spending $1.8B in 1999 on Them

PHOENIX, Feb. 4 – When IBM reported its 1999 business results a couple of weeks ago, we called the “smoke and mirrors” performance by its CFO “A Slam-Dunk of Bunk!”  That’s because the Big Blue couldn’t even touch the rim in the fourth quarter, let alone slam the ball down the hoop.  And every NBA basketball coach, player or a fan knows that real winners make their “slam-dunks” in the fourth quarter, when the chips are down.

Well, let us present to you a real fourth quarter slam-dunk contest winner: EDS.  This IT services company was supposed to be on the ropes in 1998, amid executive turmoil and underwhelming sales. 

Forget that.  That was last season.  That’s ancient history.  EDS outsold and “out-dunked” the Big Blue in the fourth quarter of 1999 for the first time in recent history.  Final score: EDS $11.2 billion; IBM $10.3 billion.  In new contract sales, of course. 

Neither figure is too shabby a performance.  For IBM, that’s also its record quarter.  Except that even the Big Blue’s best still wasn’t good enough to beat a resurgent EDS. 

In IBM’s case it meant surrendering at least for one quarter the lead the world’s No. 1 IT services vendor had held for most of the 1990s.  And which had enabled IBM to overtake EDS as the world’s largest IT services company five years ago (see the chart on the front page). Guess “it ain’t over till it’s over,” to paraphrase the proverbial “English language expert,” Yogi Berra. 

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Our report then goes on to warn:  

But EDS will have to execute a few more “slam-dunks” before its 1999 comeback can be taken as a tell-tale sign that a former IT services champion is trying to reclaim its crown in the future.  Because for all of 1999, IBM Global Services (IGS) did outsell EDS by a wide margin ($38.8 billion vs. $24.9 billion in new contract sales).

Nevertheless, both companies exited the 20^th century with backlogs of just over $60 billion, up about 20% in each case over the year before (1998).

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Here are some of the sub-headings from the rest of this Annex Bulletin:

Pullback from Buybacks

Business Segment Analysis - by Geographies, Industries

Why Smaller Is Better

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Happy bargain hunting!

Bob Djurdjevic