Updated from 4:28 p.m. EDT

EDS

(EDS)

predicted a wide third-quarter earnings miss on declining revenues Wednesday, citing an IT spending slump that it doesn't see ending before next year.

The shares fell $12.51, or 34%, to $24 in the Instinet late session.

The computer outsourcing giant expects to earn 12 cent to 15 cents a share in the current quarter, instead of the 74 cents it previously predicted. Higher "business pursuit costs," several write-downs and underperforming contracts mainly in Europe ate into the bottom line.

The company expects third-quarter revenue of about $5.3 billion to $5.5 billion, down 2% to 5% from the $5.6 billion reported a year ago. The company previously predicted revenue would rise 4% to 6% in the quarter.

"The unexpected severity of the global slowdown in corporate spending, especially in the past two months, far exceeded our expectations," EDS said in a statement. "This, combined with the

US Airways

bankruptcy and the adverse financial performance of certain European contracts, impacted our results."

For the fourth quarter, EDS expects to earn 57 cents to 59 cents a share on revenue of $5.5 billion to $5.7 billion. Analysts surveyed by Thomson Financial/First Call were predicting earnings of 88 cents a share.

Speaking on a conference call, EDS executives refused to predict how long into 2003 the current weakness would last. The company said the shortfall wasn't attributable to any single contract miss, but that "IT spending just came to a stop."

Free cash flow is now expected to be in the $200 million to $400 million range for the full year, down from previous guidance of $600 million to $800 million, primarily as a result of the lower earnings and US Airways' troubles.

The warning was pressuring shares of

IBM

(IBM) - Get Report

, which were down $4.33, or 6.2%, to $65.19 on the Instinet late session.