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EDS fires Dick Brown

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It's what the Americans call an ouster: Dick Brown, EDS CEO and chairman has been removed from his posts at the troubled computer services giant with immediate effect.

So does this mean the end of profit warnings and plunging share prices? We guess the next Q's results will resemble the Augean Stables - i.e. a lot of crap to shovel. But EDS's share price is already climbing at the news of Brown's sacking.

His replacement, Michael Jordan is the former chairman and CEO of CBS Corporation, quite a lot former - he retired from CBS in 1998. So consider him a safe pair of hands from outside the tech industry to steer EDS through some very rough waters. Also rejoining the company with immediate effect is Jeff Heller, who retired from EDS in February 2002, after 34 years with the company, latterly as vice chairman. And no, he's not returning as Lazarus - but as president and chief operating officer.

Jordan and Heller are given a little time to get their feet under the table: EDS has rescheduled the Annual Shareholders Meeting from April 22 to May 20.

Says EDS director Roger Enrico: "We are also very pleased Jeff Heller is returning to EDS. Jeff was one of the principal architects of EDS and is considered by many colleagues to be the heart, soul and conscience of the company. Nobody knows the information technology services industry better than Jeff Heller."

So he's there to make sure Jordan doesn't cock-up. And we guess that Heller is no ally of Brown - otherwise he wouldn't have come out of retirement, probably wouldn't have gone into retirement, in the first place, would he?

Enrico is somewhat less effusive about Brown.

"The EDS Board of Directors and Dick Brown mutually agreed it is in the best interests of the company to effect a leadership change at this time. We thank Dick for his many contributions to EDS. The company’s organization, client service and competitive position are all stronger today than they were four years ago. We look forward to a smooth management transition."

So it was mutually agreed? Right, where is Brown's statement on the press release, then? How does going out the door immediately square with "smooth management transition". And how can a company keep a straight face when it says that its competitive position is stronger than four years ago?

So far as competition is concerned, EDS faces a resurgent IBM. In the UK for example, the company has been toppled as the country's top computer services company (despite accounting for 40 per cent of all the UK government expenditure), according to The Times.

As for better-shaped organisation:

In July 2002, The Observer reported that a former WorldCom UK employee turned whistleblower has produced copies of invoices from EDS to WorldCom which allegedly exaggerate WorldCom's profits. EDS told The Register at the time that the "allegations are unfounded".

In recent years, EDS has explored some innovative customer financing schemes, of which at least one - a complicated airplane leaseback scheme with United Airlines - has unravelled disastrously. In December last year United declared bankruptcy, forcing EDS to write off a $40m leasing investment and issue a profit warning.

In January this year, the US Securities and Exchange Commission (SEC) announced that it had begun a formal investigation into the company's accounting practices.

EDS is an enormous company by any measure, but its ability to win new mega-deals is constrained by increasing difficulty in self-funding the enormous capital costs required upfront. Typically, huge losses are made at the outset of the contract, with the profits rolling in during the latter years.

For an example of teething problems look no further than EDS 10-K report filed last week, in which it disclosed that 430m it has invested in a contract with an unnamed company could be at risk. It reckons it can claw back its investment, but its been missing deadlines and it may have to make a big asset impairment charge, BizReport reports.

Funding constraints could account for the collapse last month of the mega-outsourcing deal with Alstom, worth more than $1bn, before it had even started.

Consequently, EDS is now turning its sights on what it calls the "mid-market", bloody big outsourcing deals by the standards of most companies, but not an area that EDS has previously been particularly interested, or successful, in. ®

Related stories

EDS issues profit warning on United bankruptcy
SEC investigation of EDS goes formal
ALSTOM ditches EDS - before it gets started

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