A Telecom Vet Takes On Eds
He doesn't officially start his new job until Jan. 15--but Richard H. "Dick" Brown is already hard at work for Electronic Data Systems Corp. On Dec. 11, the day after being named CEO, he started with a teleconference for a cheering crowd of EDS employees at the Plano (Tex.) headquarters. That afternoon, Brown, still CEO of Cable & Wireless PLC, made a sales call for EDS in London.
Brown, who earned a reputation as a rapid-fire dealmaker at C&W, may also be planning deals for EDS. On Dec. 15, alliance talks between EDS and MCI WorldCom surfaced. They are said to be working out plans to sell an array of services together. As part of the deal, EDS might absorb MCI Systemhouse, the phone giant's computer-services unit, which has 9,400 employees. Sources close to the talks say EDS is not the only potential partner for MCI and that no deal is imminent. The companies decline to comment. But Brown's 25-year telecom expertise and knowledge of MCI--he bought its Internet backbone for C&W--could give EDS an edge.
Deal or no, investors are cheering Brown's appointment after a four-month search to replace CEO Lester M. Alberthal Jr. The stock is up more than 10% since the announcement.
Brown refashioned Cable & Wireless through 21 deals over 29 months and a crusade to shake up a hidebound organization. At C&W, he replaced 65 of the top 100 execs and instituted a review system that ranked employees from best to worst. "Leaders get the behavior they tolerate," says Brown, 51.
At EDS, Brown will likely weed through some 45 "strategic business units" and thousands of contracts, pruning or restructuring the losers. And he'll almost certainly make acquisitions to beef up EDS' capabilities in Net systems and electronic commerce. He's also expected to overhaul EDS' management. Performance has been sorely lacking since EDS' spin-off from General Motors Corp. in 1996. Net earnings, excluding one-time items, this year will drop 12%, to $832 million, on a 13% sales gain, estimates Lehman Brothers Inc. analyst Patrick M. Burton. That follows a 6% profit decline in 1997 and anemic sales growth of 5.5% as EDS lost market share.
While the company has recently signed up lots of new business--an estimated $13 billion in contracts this year--Brown faces a big drag on EDS' growth: GM. Analysts figure margins on GM business, which accounts for 24% of revenues, have fallen from 12% or more to single digits as GM has demanded lower prices and different services. Stephen T. McClellan of Merrill Lynch & Co. thinks Brown should "have serious discussions with GM to renegotiate the contract." Brown is arriving not a moment too soon.
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