Germany to Play Key Role in EDS' Expansion Strategy

U.S. IT-services provider Electronic Data Systems Corp. (EDS) plans to maintain its healthy growth rates by increasingly targeting small and midsized businesses, and the German market is to play a key role in this expansion plan, Chief Executive Richard H. Brown said in an interview with Handelsblatt. "Our target group will no longer be the world's 500 leading companies but the top 5,000," Brown said.

With sales of $21 billion in 2001, EDS is the world's second-largest provider of IT services after IBM Corp. In the fourth quarter of last year, the group raised sales 14% on the year-ago period to $5.9 billion and booked profit of $405 million.

In Germany, EDS currently ranks only fourth in its sector, but not for much longer, if Brown has his way.

The country's important small and midsized business sector will be the focus of his company's expansion plans.

Following radical restructuring, the takeover of Hamburg-based IT-services firm Systematics AG, and improved integration of its divisions with group-internal business consultancy A.T. Kearney, EDS is becoming one of the sharpest competitors of Germany's current sector leaders.

In the fourth quarter of 2001, it booked stronger growth rates than T-Systems, CSC Ploenzke AG and Siemens Business Services (SBS).

The U.S. company's progress has not been lost on its rivals. "We are currently watching EDS' moves on the German market very closely," a competitor said.

But Brown said that growth in Germany was to be achieved organically and not through more acquisitions. "We don't have to make any more takeovers," he said. "But of course we will take advantage of any opportunity that might present itself."

EDS also still has a score to settle with Deutsche Telekom AG. Two years ago, EDS had its eye on DaimlerChrysler's global services company, Debis. The unit eventually was sold to Telekom, which via its T-Systems unit became Europe's leading IT services provider.

But for Brown, formerly Chief Executive of Cable & Wireless, the strategy of combining telecommunications and IT services is doomed to fail. "From my experience as head of major companies in both sectors, I don't think it would make sense for EDS to enter the telecoms business. The two markets function completely differently," he stressed.

Despite healthy sales growth last year, EDS' incoming orders in the fourth quarter were lower than expected. Some contracts were not completed in time, Brown said. The number of possible new orders this year would be up 55% from the previous year, according to Brown. As a result, sales are expected to rise 13–16%. Consultancy subsidiary A.T. Kearney, which saw revenue slump 12% in the fourth quarter, was forecast to also recover strongly in the current year.

But analysts at Forrester Research said that Europe's IT-services market would not return to two-digit growth rates before 2003. EDS plans to raise its profile in the world's second-largest market with an extensive brand campaign, starting in April.