23 April 2002 Analysts have given a muted, but positive response to the first quarter results from IT services giant EDS, despite the company’s net income falling by a fifth.

Nevertheless, EDS could boast revenues up by 7.1% to $5.34 billion (€6bn) in the first quarter of 2002, compared to $4.99 billion (€5.63bn) achieved in the same period a year earlier. However, the company missed analysts’ consensus revenue estimates by around $300 million (€338.3m).

EDS reported net income of $354 million (€399.2m) compared to $470 million (€530m) for the same period in 2001, or $446 million (€503m) after a change in accounting for derivatives was factored into last year’s results. EDS has also emphasized a one-time gain it made in the first quarter of 2001. Excluding this, last year’s net income would have weighed in at $301 million (€339.4m), it said.

Richard Brown, EDS’s chairman and CEO, claimed that the company’s lower than expected results were due to customers deferring technology spending due to broader economic concerns.

Indeed, investors could have expected an earnings and revenue shortfall considering that IBM’s first quarter net income, which was announced last week, fell by a third on a 12% revenue drop. Yet, some analysts expressed surprise at EDS’s underperformance.

However, the company’s base organic revenue growth of 8% has been interpreted by financial analysts at investment bank Robertson Stephens as evidence that EDS remains strong. EDS has also been praised for its ability to consistently increase operating margins to soak up recent shortfalls in revenue and provide consistent earnings growth.

The company’s operating margin grew to 11.3% this last quarter, compared to 8.9% for the same period last year. However, Robertson Stephens believes that much of this ‘cushion’ has now been utilised and that another revenue shortfall will result in a more significant earnings miss.