• silicon.com
• Management
• CIO Insights

By Sonya Rabbitte, 1 July 2002 16:00

NEWS EDS stands to lose three per cent of its annual revenue if a $12bn outsourcing contract with WorldCom is hit by the telco's accounting debacle. Despite reassurances from EDS last week that it had not been affected by the WorldCom scandal, analysts have warned that the company will struggle if the contract is cancelled. WorldCom inked the 11-year, $12.5bn deal with EDS in 1999. The outsourcing pact was to have generated annual revenues of $500m to $600m for EDS until 2010. But any change to that contract could hit EDS's annual earnings by up to three per cent, according to a report in yesterday's New York Post. For the 2001 fiscal year EDS posted revenues of £21bn. In a statement released last week, EDS said its contract with WorldCom remained unaffected, and that it was not experiencing any problems with its network services which are provided by WorldCom. "WorldCom remains current with respect to substantially all amounts payable under that agreement," said EDS, adding that unbilled sales were "not material". But analysts widely believe that WorldCom's banks will foreclose on its $30bn debt.
With WorldCom facing Chapter 11, the long-term contract is unlikely to be fulfilled. Richard Holway, director of research house Ovum/Holway, said: "If WorldCom got acquired, which is the most likely outcome of Chapter 11, the buyers will probably want to make their own IT arrangements. There will be a huge question mark over this contract. "EDS won't come crumbling down, but any contract of that size is significant," he added. EDS shares continued their decline today, falling a further 3.77 per cent to $35.75 to reach a new 52 week low.