EDS Turns To Technology In Effort To Keep Navy Intranet Project Afloat - InformationWeek

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EDS Turns To Technology In Effort To Keep Navy Intranet Project Afloat

The IT services firm is set to begin deploying new automation technology to bring the costs of a contract with the U.S. Navy and Marine Corps under control.

EDS has tapped a former business IT exec to help fix its troubled intranet contract with the U.S. Navy and Marine Corps and is set to deploy new automation technology in an effort to solve the costly delays that have plagued the 3-year-old project.

Cost overruns on the project have sapped management attention at EDS and wreaked havoc on its balance sheet.

On Thursday, a $559 million charge against earnings to cover deferred costs on the contract pushed the IT services firm to a fourth-quarter loss of $354 million, or 74 cents per share. To date, EDS has taken a total of $678.7 million in write-offs on the seven-year, $6.9 billion deal. "It seems to have become a quarterly ritual," says John Jones, a Schwab SoundView Capital Markets analyst.

EDS is turning to former Delta Air Lines technology VP Mike Koehler in an effort to bring the contract under control. Koehler, who has extensive experience with companywide technology deployments at multinational companies, joined EDS last month through its acquisition of IT consulting firm the Feld Group, where he had served as chief operating officer. Koehler says his first priority is to oversee the application of new provisioning technology to the Navy and Marine Corps, which ultimately calls for the rollout of 360,000 desktops on a secure network through which military personnel will be able to manage everything from their benefits to ammunition supplies. About 150,000 desktops are up and running on the network.

EDS begins testing the technology next week at a staging area at the Navy base in San Diego. "This is going to help us lock down the deployment schedule," says Koehler, who will report on progress directly to Jeff Heller, EDS's president and chief operating officer. The tools consist of a set of homegrown automated and remote desktop provisioning software that EDS refers to internally as BDM--build, deploy, and manage. Koehler says he believes the tools will let EDS reduce the labor hours associated with Navy-Marine Corps intranet provisioning by 50%.

EDS also plans to use the provisioning technology to cut expenses on commercial engagements, a market in which it has conceded that it's not cost-competitive with rivals such as IBM Global Services. "This is a cornerstone effort, not just for NMCI, but for the way we'll approach the market in general," Koehler says.

But for now, Koehler says he's focused on fixing the contract--and with good reason. EDS said Thursday that in addition to the earnings charge, a more-prolonged deployment schedule will reduce cash flow over the life of the contract from $1.9 billion to $900 million. That prompted Standard & Poor's and Moody's Investors Service to issue statements Friday indicating that they may downgrade EDS's debt to junk-bond status.

In the fourth quarter ending Dec. 31, EDS posted revenue of $5.76 billion, an 8% increase from the same period a year ago. For all of 2003, it recorded sales of $21.5 billion, an increase of 7% over 2002. For the year, the company posted a loss of $1.7 billion, or $3.55 a share, after earning $460 million, or 94 cents a share, in 2002.

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