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EDS to cut more jobs, reduce costs 25 pct in 3 yrs

By Wei Gu

PLANO, Texas, Jan 27 (Reuters) - Electronic Data Systems Corp. , faced with mounting competition among computer service providers, on Tuesday said it will further cut its workforce and move some operations abroad to slash costs by 25 percent in three years.

EDS has suffered in recent years from unprofitable contracts, a cash drain after certain customers filed for bankruptcy, and increasing competition. It has already announced 5,200 job cuts to align costs better with sales.

"Folks who cannot make the transition are probably not going to be along with us," Dave Clementz, executive vice president of service delivery, told industry analysts, in response to a question about job cuts. "But I do not know how many jobs because it depends on how fast we can move."

CEO Michael Jordan said EDS is unlikely to see another "big-bang" sort of workforce reduction. He did not specify how many jobs will be moved abroad, but said customers are asking it to move to low-cost countries to improve efficiency.

Clementz said EDS will pursue a "global-shore" strategy to go where costs are low. "Moving to India is not necessarily the best answer, we have seen costs going up in India, but it is still low," he said.

EDS, which is being probed by the U.S. Securities and Exchange Commission, is fiercely competing for new business in an increasingly crowded field with such players as International Business Machines Corp. and Hewlett-Packard Co .

In the past year, EDS has brought in a new chief executive and a team of three former chief information officers from client companies, who pledged to avoid money-losing deals and cut costs to right its business.

The company, based in Plano, Texas, is betting it can win business by jointly bidding for new contracts with its software partners while sharing with them the cost of research and development. Jordan said he expected to see "accelerating revenue" by the end of the year.

EDS has had problems signing new contracts, partly due to its mounting debt. Competition for outsourcing deals have also intensified in recent years, resulting in its recent loss of a 10-year contract from Britain's tax authority.

Contract sizes have become smaller, as companies split them between providers to get the best results. EDS, which was a spin-off from General Motors Corp. , may have to give a portion of the lucrative GM contract to competitors when its current contract expires in 2006, said analysts.

Steve Schuckenbrock, EDS executive vice president of global sales, told Reuters that GM, one of its biggest customers, is expected to decide next year on a winner of the contract, which is worth at least $1.5 billion a year.

Competition for mega-deals has intensified, as Indian providers compete aggressively on price. But EDS said it will not sacrifice profit for revenue. "We are not after unprofitable deals - It's got to be profitable," said Clementz.

Jordan, who was credited with turning the old industrial company Westinghouse into a media power, told analysts he is reinventing the technology services giant by strengthening the balance sheet, streamlining operations, and bringing in new management.

But analysts do not expect a quick turnaround. Because EDS changed the way it accounts for revenue and expenses last year, year-over-year comparisons are difficult.

"Don't expect 'quick and miracle' results," said Rod Bourgeois, an analyst with Bernstein Research. "We do not think EDS' turnaround effort has been geared toward achieving big results overnight."