Commentary
5/12/2008
05:26 PM
Rajan Chandras
Rajan Chandras
Commentary

Birth of a Behemoth: HP to Purchase EDS

News is that HP is purchasing EDS. HP was already marginally bigger than IBM, and now with this bold move, HP is looking to catch up with IBM in the lucrative Services sector, which provides a large chunk of IBM's revenue and an even larger chunk of profitability. In data management, though, IBM continues to have a formidable lead.



News is that HP is purchasing EDS. HP was already marginally bigger than IBM, and now with this bold move, HP is looking to catch up with IBM in the lucrative Services sector, which provides a large chunk of IBM's revenue and an even larger chunk of profitability. In data management, though, IBM will probably continue to have a formidable lead for some time.First, as they say on National Public Radio, let's do the numbers.

- In terms of 2007 revenue, HP + EDS = about $126 billion, while IBM = $ 99 billion. In other words, HP will soon become significantly larger than IBM - no mean feat. - In services, though, HP will likely still remain behind. If I have my off-the-cuff numbers right, services accounted for over $50 billion of IBM's revenue last year, while HP had revenue of about $15-20 billion - even adding up the full $22 billion for EDS, HP + EDS still falls short of IBM in terms of service revenue.

Then it gets interesting. For example:

- IBM has had plenty of time to digest its service acquisitions (e.g. PWC), as well as establish its global service delivery model. HP will likely struggle for at least a year or two to get it all straightened out.

- IBM has excelled at orchestrating all the revenue streams: hardware, software, services. HP, unfortunately, doesn't have quite as much firepower by way of software products to begin with (Mercury, HP's biggest software acquisition, added some $2 billion in revenue), and will need time to tune the discordant divisions (for example, where's the synergy between EDS and HP's Imaging and Printing division, one of its stellar performers over the years?)

- In the area of data management, too, HP seems well behind IBM. Although the HP Neoview data warehousing platform and the Knightsbridge acquisition are a good start, HP has miles to go before it can be a legitimate contender in the eyes of customers, especially against an IBM fortified by Ascential, Cognos and numerous other acquisitions over and above its historical strength in databases.

Next move, IBM.News is that HP is purchasing EDS. HP was already marginally bigger than IBM, and now with this bold move, HP is looking to catch up with IBM in the lucrative Services sector, which provides a large chunk of IBM's revenue and an even larger chunk of profitability. In data management, though, IBM continues to have a formidable lead.

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