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EDS to move application development offshore

IT services company will close 21 centers by the end of 2006--17 in the United States and four in Europe.

Electronic Data Systems plans to close application development centers in the United States and Europe and shift some of the work to offshore locations such as India in an effort to cut costs.

Twenty-one centers will be closed by the end of 2006--17 in the United States and four in Europe, according to CFO Robert Swan--just under half of the 54 centers that the IT services company runs in those two regions.

The company, which announced the decision Tuesday, did not say how many jobs would be affected by the move.

Currently 27 percent of EDS' software application management workers are based in offshore locations; this change will increase that number by a third.

The decision to offshore the application development centers is part of a cost-cutting plan that will eliminate up to 20,000 jobs within EDS' 120,000-employee work force.

Analysts, however, point out that time is of the essence in making the effort succeed.

"The suggested 20 percent reduction in costs over the next period--helped by the movement of application management staff to offshore locations--will enable an increased investment in branding and marketing (already under way)," Ovum Holway analyst Georgina O'Toole said in a research note. "However, this investment will need to bear fruit quickly if EDS is to achieve the turnaround that it is so optimistically suggesting."

Sylvia Carr of Silicon.com reported from London.