NEW YORK (CNN/Money) - Shares of computer services companies tumbled Thursday after a huge quarterly profit warning from Electronic Data Systems Corp. highlighted the perils in what had been one of the last safe havens in technology.

While the news from EDS whacked other information technology service providers, the magnitude of EDS' (EDS: down $19.26 to $17.20, Research, Estimates) decline was far greater than any of its counterparts. Its shares lost more than half their value, falling to their lowest level in 11 years.

Late Wednesday, the Plano, Texas-based company said it expects third-quarter revenue to be down 2 to 5 percent, rather than up as EDS executives had previously forecast, and earnings of 12 to 15 cents a share, well below previous estimates of about 74 cents.

Some of EDS' woes can be traced to company specific issues, such as its exposure to US Airways and WorldCom, both of which have filed for Chapter 11 bankruptcy protection from creditors.

But EDS executives attributed much of the quarter's weakness to what they said was a near-halt in IT spending by large corporations. "We expected spending to tighten ... not virtually stop," EDS Chairman and CEO Dick Brown said on a conference call Wednesday.

It came as no surprise to industry observers that EDS lowered its targets for the quarter, as the industry had been showing some signs of weakness. For example, IBM's services business, the world's largest, began softening in the fourth quarter, and Armonk, N.Y.-based Big Blue has cut more than 14,000 jobs in that unit in an effort to maintain profits.

Many industry analysts had been saying that service companies would fare better in a weak economy than computer hardware makers and telecom equipment providers, for example, which have been hit particularly hard.

What wasn't expected was the magnitude of EDS' shortfall, and the news prompted a host of brokers to downgrade the stock and cast a wary eye on the rest of the industry.

Deutsche Bank Securities, whose investment banking arm lists EDS among its clients, changed its rating on EDS to "sell" from "buy," and slashed its 2002 earnings estimate to $1.98 a share from $2.93. Next year, the firm said it is expecting EDS to earn $2.12 a share, where its previous estimate had been $3.38.

By Deutsche Bank's estimate, more than half the shortfall is company-specific. But the firm also said it expects other IT services providers' profit forecasts will need to be lowered as well. "We remain very bearish on the space," the firm said in a research note to clients.

At least 10 other brokerages downgraded EDS shares Thursday, including Salomon Smith Barney, Lehman Brothers and J.P. Morgan. Many also cut their earnings estimates for other IT services companies, including IBM (IBM: down $4.75 to $64.80, Research, Estimates), whose shares fell 6.8 percent.

Part of what distinguished IT services providers -- which manage other companies' technology operations on their behalf -- was the idea that their customers would need them, in good times or bad. In good times they need them to help them grow. In bad times they need them to make them more efficient.

"That's been the sales pitch I've been hearing from all these companies," said Bob Djurdjevic, president of Annex Research, a market research and consulting firm that does not trade the stocks or take short positions in any of the companies it follows.

Djurdjevic also said he expects other IT services companies upcoming financial results to come in shy of previous expectations as their core base of large corporate customers continues to tighten its IT purse strings.

"Only the degree of severity of the decline will vary from one company to the next," Djurdjevic said.

Such weakness is largely the result of all the top-tier IT services outfits going after the same base of customers, which are the largest corporations whose IT operations represent the most potential for profits, according Djurdjevic.

The problem is that those are the companies that currently are seeing the most drastic budget and capital spending cutbacks, he said.

"The answer obviously has to be in diversifying the customer set, drilling down deeper into the smaller and medium-sized companies," Djurdjevic said.

Other IT services outfits whose stocks got caught in the EDS downdraft included:Computer Sciences Corp. (CSC: down $5.66 to $29.50, Research, Estimates), which slid 14.6 percent; Affiliated Computer Services Inc. (ACS: Research, Estimates), which fell 7.9 percent; and Sunguard Data Systems Inc. (SDS: down $2.21 to $21.31, Research, Estimates), whose shares fell 8.7 percent.

SG Cowen analyst Moshe Katri suggested that the selloff in IT services stocks was being overdone, arguing that the bulk of EDS' troubles are company-specific and not necessarily an indicator that all its competitors will suffer as well. The magnitude of EDS' shortfall is more a result of its readjusting profit expectations for some of the larger deals it has signed over the past two or three years, he said.

"When they take off the revenue guidance about 10 percent but then in the same context they're taking off their EPS guidance by 50 percent, obviously there's something more fundamental than just saying, 'This is an environment where some discretionary spending is not coming through,' " Katri said.

SG Cowen, which has done some investment banking business with EDS, downgraded its shares to "market perform" from "outperform."