Atlanta/Dallas: Electronic Data Systems Corp. (EDS), the second largest computer services firm, plans to offer early retirement to 12,000 employees, a quarter of its US workforce, after orders plunged last quarter.
The cost of the cuts will be $70-130 million (Rs283.5- 526.5 crore) in the fourth quarter, the company said in a regulatory filing. Employees at the Plano, Texas-based company have until 30 October to accept the severance package, EDS said on Thursday.
EDS shares have dropped 15% since 1 August, when the computer services provider said bookings fell 20% last quarter. Chief executive officer Ronald Rittenmeyer, who took over on 1 September from Michael Jordan, is hiring workers in India to replace more expensive US employees and revive profit.
“Some of the work they are doing will probably move to lower-cost geographies around the globe,” said Joseph Vafi, an analyst at Jefferies & Co. in San Francisco.
Vafi, who said the plan may save several hundred million dollars a year, rates the shares “hold” and doesn’t own any.
EDS, whose customers include General Motors Corp. and Commonwealth Bank of Australia, faces competition from International Business Machines Corp., the biggest computer services provider, and Indian outsourcing companies such as Tata Consultancy Services Ltd.
The company has about 50,000 US employees, and 136,000 globally. Officials don’t have an estimate for how many will take the offer or what the savings may be, spokesman Bob Brand said. The decision is separate from any job cuts the company may announce later, he said.
EDS will pay the costs from its pension plan. The expenses won’t hurt cash flow, he said.
Businesses and government agencies hire outsourcing companies to manage computers, set up networks, run finance and human resource services and develop and integrate software. Those can be labour intensive jobs, and it’s cheaper to pay workers overseas to handle the tasks.
Founded by H. Ross Perot in 1962, EDS brought in Jordan in 2003 after then chief executive Richard Brown presided over a 77% plunge in the stock in 16 months as unprofitable deals and bankruptcies of customers, including US Airways Group Inc. and WorldCom Inc. slashed profit.
Jordan, who ran CBS Corp. and predecessor Westinghouse Corp., led EDS to eight straight quarters of profit growth and started shifting work to lower cost countries. Rittenmeyer pledged to continue the trend when he took over.
The company plans to increase its workforce in emerging markets to 45,000 by the end of next year, up from 380,000, mainly in India, Brazil, the Czech Republic, Hungary and China.
Last year, the company bought control of Bangalore software provider Mphasis BFL Ltd, and in March it added RelQ Software Pvt. Ltd.
Second quarter operating profit in the Americas region was $374 million, an 8% decline from a year earlier.
The last time EDS offered US workers early retirement was in 2004, when 1,500 accepted an offer made to 9,200 employees.
Four analysts suggest buying the company’s stock, 12 recommend holding it and one has a “sell” rating, according to data compiled by Bloomberg.