Slimming EDS Draws Mixed Reviews

Electronic Data Systems (EDS Quote) continues to dismantle itself.

The company now plans to take apart its workforce -- slashing up to 20,000 more jobs -- and then put itself back together as a more efficient operation. CEO Michael Jordan announced the future cuts during a presentation to investors in New York on Thursday. EDS spokesman Kevin Lightfoot told TheStreet.com on Friday that the layoffs are simply part of the company's established plan to shave its cost structure by 20%, or $3 billion, over the next several years.

Currently, EDS employs 122,000 people around the world. But some 5,000 EDS workers have already lost their jobs during Jordan's attempt to rebuild the company.

At least one EDS critic fears that Jordan -- hired in March 2003 as a "turnaround CEO" -- is destroying the company instead.

"Michael Jordan continues to be fixing something that's not broken," insisted Bob Djurdjevic, an industry analyst at Annex Research. "Cost-cutting is what he knows how to do ... but that is certainly the last thing this company needs right now."

EDS has blamed much of its troubles on "problem contracts," particularly a multibillion-dollar deal with the U.S. Navy, signed before Jordan arrived at the company. But EDS critics also worry about the contracts the company is not signing now.

UBS analyst Adam Frisch -- an early EDS bear -- noted last month that less than 20% of the company's second-quarter bookings came from new customers. Moreover, he suspects that metric could weaken even more in the second half of this year due to EDS' new junk credit rating. He says that a slew of competitors, including industry leader IBM (IBM Quote), can deliver the same services as EDS without the risk posed by junk credit.

Djurdjevic is worried about the company's ability to attract new business as well. He says that EDS relied heavily on existing customers for "add-on" business to increase bookings in the latest quarter. Yet he also spotted clear signs that EDS may be failing to please even that client base. He says the company's outright renewal rate was just 14% -- a steep drop from the 45% reported in the first quarter -- during the most recent period.