NEW YORK (CNN/Money) -
Information technology services provider Electronic Data Systems Corp. on Wednesday cut its third-quarter earnings outlook, saying companies are continuing to hold the line on IT spending.
The company said it now expects to report revenue ranging between $5.3 billion and $5.5 billion, down 2 to 5 percent from the $5.6 billion it reported a year ago. Previously, EDS executives had forecast a year-over-year revenue increase of as much as 6 percent.
As a result, EDS said it expects to report earnings per share of 12 to 15 cents for the quarter. The company previously had estimated earnings per share of 74 cents per share for the third quarter.
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EDS blamed the revenue shortfall on reduced discretionary spending on existing contracts as well as fewer new sales. The revenue shortfall, combined with increases in its spending on sales and marketing, accounted for between 25 cents and 28 cents of the lowered earnings per share estimate, EDS said.
The company also blamed writedowns associated with the U.S. Airways bankruptcy in August, although it did not quantify its impact.
According to U.S. Airways' bankruptcy filing, EDS is one of the airline's largest unsecured creditors. In August, EDS issued a statement saying its total exposure to that bankruptcy filing is about $140 million, but it remained in discussions with U.S. Airways about its contracts and expected to continue to work for the airline and be paid for its services.
At that time, EDS, the world's No. 2 IT services provider, also said it did not believe that a restructuring of the IT services agreement, if any, would be material to its results of operations or financial position.
In July, EDS also warned that its revenue and earnings in the second half of the year could take a hit from its exposure to bankrupt telecommunications service provider WorldCom Group.
The Plano, Tex.-based company also pointed to financial performance of certain contracts, mainly in Europe, and asset impairments resulting primarily from EDS' decision to exit the subscription fulfillment business as reasons for the quarterly shortfall.
Shares of EDS (EDS: Research, Estimates) plunged more than 27 percent to $26.50 in extended-hours trade after closing at $36.46 during Wednesday's regular session on the New York Stock Exchange.
EDS rival IBM (IBM: Research, Estimates), which operates the world's largest IT services business, fell in sympathy, trading 5.1 percent lower at $66 in extended-hours trade after closing at $69.55 in the regular session.
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