Software // Information Management
Commentary
5/13/2008
06:30 PM
Rajan Chandras
Rajan Chandras
Commentary
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The HP-EDS Bulls Eye (and Collateral Damage)

As the mists clear away on the HP-EDS deal, it appears that there's good news in the making for companies that outsource their infrastructure, and not-so-good news for HP competitors. Judging from the technology analysts/media response, here is an early assessment of the impact of the merger…

As the mists clear away on the HP-EDS deal, it appears that there's good news in the making for companies that outsource their infrastructure, and not-so-good news for HP competitors. Judging from the technology analysts/media response, here is an early assessment of the impact of the merger…• HP and EDS are both strong, complementary players in infrastructure outsourcing. Provided that HP/EDS are able to synergize their offerings (see next bullet), this bodes well for customers not just in the form of a strong additional competitor, but one that has a strong and well-rounded offering (1 + 1 = 3, so to speak).

• EDS will be re-branded as "EDS, an HP company," will continue to be headquartered in Plano, Texas, and will also continue to be led by Ronald Rittenmeyer, EDS Chairman/President/CEO. On the whole, this sounds risky. Unless HP is ready to fully empower the EDS division (which will include possibly transferring some HP assets to EDS) - in effect making EDS the "outsourcing division" of HP in all respects. This could end up emasculating rather than strengthening EDS.

• Although competitors like Accenture, ACS and SAIC will likely feel some heat from the re-energized EDS, for non-infrastructure/outsourcing services (e.g. business/solutions consulting), HP-EDS is unlikely to threaten the likes of IBM and Accenture in the near future. That said, the "New HP" will certainly stand to benefit from EDS' large presence in India. These offshore capabilities could be a particularly potent support for large infrastructure outsourcing deals (also see the second-to-last bullet).

• In software/solution sales, too, HP will remain in status quo for some time to come (which is to say, strength in niche areas, but without significant breadth), especially with its focus diverted to making the merger work.

• Indian consulting/outsourcing firms like TCS, Infosys and Wipro are expected to feel the heat as well. Some analysts expect that there will be a flurry of mergers & acquisitions amongst Indian firms, but that is doubtful, given their propensity to grow organically rather than through acquisitions and given that for the most part (except TCS), these are owner-managed companies. Besides, they've been dealing with HP and EDS as competitors for a while; outside of infrastructure outsourcing, there is no reason for any panic.

• Blogger Vinnie Mirchandani believes that "the timing [for the merger] is risky because infrastructure outsourcing is being challenged by data center consolidations, a secular decline in processing, storage and network charges and emergence of utility and cloud computing models. Not the world either EDS or HP grew up in." Yet, that reality existed before the merger; if anything, HP and EDS can face that challenge better together than individually.

• From a shareholder perspective, here's what a blog on the Wall Street Journal has to say: "If Mark Hurd can cut net 30,000 employees at EDS by working them smarter (i.e. cut 60,000 over 5 years in Europe and America and replace with 30,000 in India), this is a good deal for H-P's shareholders."

• The outlook for HP's large and profitable Imaging and Printer division remains a conundrum. Chances are that it will remain a largely separate business entity.

Of course, even with the merger, HP-EDS is no IBM. The sheer breadth of IBM's offerings and IBM's largely proven ability to synergize its various segments will be hard to match. In areas of infrastructure management and outsourcing (including data center automation and data center as a service), however, it looks like there's a potential leader in the making.

At the same time, it would seem as if no IT services company can rest easy for a while at least - IBM and others will likely be prowling the corporate jungles in an acquisitive frame of mind.As the mists clear away on the HP-EDS deal, it appears that there's good news in the making for companies that outsource their infrastructure, and not-so-good news for HP competitors. Judging from the technology analysts/media response, here is an early assessment of the impact of the merger…

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