EDS profit and outlook miss estimates as stock down

By Philipp Gollner

SAN FRANCISCO (Reuters) - Electronic Data Systems Corp (EDS.N: Quote, Profile, Research, Stock Buzz), the second-largest technology outsourcing company, posted a lower-than-expected profit and weak earnings outlook on Wednesday, sending its shares down 6 percent.

Contract signings were down from a year ago and EDS executives said some deals had been pushed into the current quarter. Difficulties meeting some project targets also hurt results, the company said.

"We clearly are not satisfied with the pace of improvement," Chief Executive Ron Rittenmeyer told analysts on a conference call. "There are some areas where we could have done better. Some of that is performance, where it will get much better in 2008."

EDS's disappointing earnings report comes after U.S. stocks tumbled this week amid new signs that the economy may have slipped into a recession. Data released on Tuesday showed a sharp contraction in the services sector, the largest part of the U.S. economy and an important revenue source for EDS.

"EDS generally ends the year pretty strong. It's a little bit of a wake-up call for the stock," said Jefferies & Co analyst Joseph Vafi, who has a "hold" rating on the stock. "This was basically a pretty soft quarter for them."

Concerns over a U.S. recession sent stocks in India, where EDS has about 27,000 employees, down sharply on Wednesday, with software services exporters such as EDS competitor Infosys Technologies Ltd (INFY.BO: Quote, Profile, Research, Stock Buzz) leading losses.

In the United States, technology stocks fell broadly in extended trading on Wednesday after network equipment maker Cisco Systems Inc (CSCO.O: Quote, Profile, Research, Stock Buzz) forecast disappointing third-quarter revenue growth, citing economic concerns.

Rittenmeyer said the U.S. economy was "certainly something we are aware of and monitoring." But, he added, "At this point, we haven't seen anything that puts us in a serious state of concern."