EDS to move application development offshore

EDS plans to close application development centres in Europe and the US and shift some of the work to offshore locations such as India in an effort to cut costs.

A total of 21 centres will be closed by the end of 2006 - 17 in the US and four in Europe, according to CFO Robert Swan - just under half of the 54 centres the IT outsourcing company runs in those two regions.

The company did not say how many jobs would be affected by the move.

Currently 27 per cent of EDS' software application management workers are based in offshore locations and this change will increase that number by a third.

Speaking with financial analysts on Tuesday, EDS also said it expects contract signings of $23bn in 2007 compared to $14.9bn in 2004 - and suggested it aims to increase its work for GM, which accounted for $1.8bn of EDS' revenues in 2004.

The decision to offshore the application development centres is part of a cost-cutting plan which will see up to 20,000 jobs within EDS's 120,000-employee workforce eliminated.

Analysts, however, point out that time is of the essence in making the effort succeed.

Ovum Holway analyst Georgina O'Toole said in a research note: "The suggested 20 per cent reduction in costs over the next period - helped by the movement of application management staff to offshore locations - will enable an increased investment in branding and marketing (already underway). However, this investment will need to bear fruit quickly if EDS is to achieve the turnaround that it is so optimistically suggesting."