EDS Finally Owns Up to Bleak Outlook

Last year, EDS detected and later remedied deficiencies in its ability to estimate revenues and costs associated with the NMCI contract. On Monday, the company announced that it had recently detected additional weaknesses -- some dating back two years -- with the NMCI project. It described both past and recent deficiencies as "reportable conditions" that could threaten the validity of the company's financial statements.

By now, many analysts have lost patience with the former industry darling that has, so far, failed to rebound under the leadership of turnaround CEO Michael Jordan. They have, in fact, come to expect big disappointments from the company instead.

On Monday, for example, Prudential Equity analyst Bryan Keane noted that EDS is -- once again -- running behind schedule on its big Navy contract. Keane, who has no price target on EDS' shares due to uncertainty surrounding the SEC investigation, has recommended underweighting the stock for months.

Bob Djurdjevic, an industry analyst at Annex Research in Phoenix, doubts that EDS will ever recover in the end.

"They have to change the game plan," he explained. "I've been saying for over a year that what's broken at EDS is the sales strategy. But I don't see any hotshot sales leaders -- even now."

Grass Is Greener

Djurdjevic says that EDS's peers, most notably Accenture ACN and IBM IBM, have grown their business by simply offering valuable outsourcing services to their clients. In contrast, he said, EDS has acted more like a bank that actually buys its customers' assets in contracts that -- like the Navy megadeal -- often fail to make any money. And he has seen no real improvements under the company's new management team.