EDS targets bite-sized deals

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Service giant EDS has signalled a move toward smaller outsourcing contracts that promise a quick pay-back after being stung by the cash flow drain of a number of failed bids on huge contracts.

Chief sales officer Stephen Smith said EDS would increase incentives for sales staff that can sign contracts that will bring money into the company in 2003.

EDS has been criticised in recent years for signing huge outsourcing deals that have required a large start-up investment and produce little immediate revenue.

The company was criticised in particular for a US$6.9 billion contract with the Navy and Marine Corp that heavily drained cash. Another deal with the UK government social services department also drained cash.

Smith said although the company was becoming more selective, and would give priority to those deals that would produce a cash flow, and deals that would not drain the company's capital resources.

Rather than compete for 90 deals worth more than US$250 million each, EDS would instead compete for 30 to 50 of these larger outsourcing service deals, Smith said.

Analysts received the news of the policy change favourably, but warned that regardless of the size of the contracts it pursued, EDS faced tough competition from IBM Global Services.

EDS has been troubled in recent months by negative market sentiment. EDS' share price has fallen by half since the company announced earnings in September well below expectations.

The company's chairman, Richard Brown, said recently EDS may lay-off more staff and could sell some non-performing business units in order to improve its cash position.

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