EDS Cuts Dividend

Struggling computer outsourcing giant EDS EDS slashed its quarterly dividend by two-thirds Tuesday, as the company continues to seek a firmer financial footing.

The Plano, Texas, company declared a 5-cent dividend payable Sept. 10 to shareholders of record Aug. 13. The payout represents a sharp drop from the previous 15-cent quarterly rate, but the move hardly shocked investors. EDS shares slipped fractionally in after-hours action.

Indeed, some observers have long expected EDS to sacrifice its dividend as CEO Michael Jordan continues his belt-tightening regime. The move comes just two weeks after Moody's cut EDS debt to junk, citing the company's slow progress in its turnaround.

Lower ratings make it more expensive for companies to borrow money. That's a significant disadvantage in the cutthroat outsourcing business, which is inhabited by blue-chip players like IBM IBM and Accenture ACN.

Talk of a dividend cut started swirling in earnest around EDS some two months ago, when the company warned that its credit rating might be at risk. The comment came as EDS was already fighting to gain market share in the highly competitive computer services industry.

For its part, EDS said Tuesday that the reduced dividend "brings the company dividend rate in line with market rates."

"Our board carefully analyzed the impact of this change on our shareholders and felt it prudent to free up additional funds to further enhance our competitiveness," Jordan said. "This action provides additional financial resources to invest in the business as we build out our strategic technology platform."

In its glory days, EDS relied on high-profile "megadeals" to grow its business. But the huge contracts required significant cash investments that, in some cases, have yet to pay off. Indeed, the company's largest megadeal -- a contract to create the Navy-Marine Corps Intranet -- has turned into a disaster.