I was minding my own business and twittering (I think that is how you say it) when I noticed a breaking news story from the Wall Street Journal: HP would be acquiring EDS. This is quite a significant transition for HP that will help transform the company into a new position in the market. Now, at this time it isn't official—no conference call yet on my calendar but it certainly looks probable. In fact, Mark Hurd has acknowledged that the companies are talking. I picked up that detail from Larry Dignan and Justin Perlow's blog. So, what does this mean? There are a lot of issues at play. Here are my five 'top ten' thoughts:
One. HP needs more significant help on services and consulting. When Carly Fiorina was HP's CEO, they tried to buy PriceWaterHouseCooper's consulting practice and failed. After that failure, IBM scooped up the consulting practice which became the highly successful Global Business Services. Since then HP has made small targeted acquisitions. To compete in a global market, HP needs the deep expertise and customer relationships of a major consulting operation. And EDS is one of the biggest. The deal is reported to be worth between $12–13 billion. EDS revenues are around $22 billion.
Two. Synergy looks good between HP and EDS. Both companies have chosen to partner with many of the same software players including Oracle, Microsoft, TIBCO, and BEA (now part of the Oracle family). In addition, both companies have focused on big outsourcing deals. Therefore, the business philosophy of the two companies are close. The trick, of course, will be to bring these two organizations together in a way that keeps important consultants happy. This will be important since a services company is only as good as its people. Leveraging the EDS big tent will be key. Ironically, it might be easier for HP to integrate a company like EDS into the fold than to integrate a big software company. HP's existing services organization will fit into and under the EDS umbrella. The big challenge will be to manage costs. IBM has done a good job over the last several years making Global Services profitable and it hasn't been easy.
Three. Keeping services partners happy will be a challenge. HP has used the fact that it wasn't IBM Global Services as a differentiator. If it buys EDS it will have to do some work manage channel conflict. This might take some fancy footwork.
Four. What about the mainframe business? EDS has a significant mainframe business. The mainframe has been something that HP has studiously avoided. Does this mean that HP will learn to love the mainframe? It might consider such a relationship given the complexities of scaling and managing high end data centers and clouds. It might take some convincing but if HP watches carefully what EDS has achieved with the mainframe it might change its tune.
Five. Will HP know how to leverage EDS's expertise to enhance the software business? There is nothing like being close to the customer in difficult implementations to know where the pain is. If HP goes through with the acquisition it would be wise to leverage this expertise in the software group. Leveraging EDS's deep customer expertise could add assistance to the software business.
Reader Comments
We are no longer accepting comments against this item. We suggest contacting the author directly.
14th May 2008: 'Ernest Williams' said:
I applaud Judith's comments about the inevidibility of an HP buyout of EDS. I think she is right on point with every single statement; but she did miss one.
The table is already set for an undoubtedly large partnership between HP/EDS and United Airlines. I’ve worked as an IT Contractor at United since 2007; and to see United first acquire EDS’s top exec Keith Halbert, who then acquires his EDS buddy, Samuel Moultrie to fill United’s CIO and CTO positions respectively, it’s clear to me what is going to happen. When you add that to the fact that United has announced, and have already begun actually, cutting 500 IT Contractors (I am one who made the “cut list”), I don’t believe anyone can dispute how this HP/EDS announcement will nicely fit into United’s future.
I’ve seen this done at Allstate Corp (yes I was there as a contractor for 6-1/2 years prior to joining United) when they hired Accenture’s top exec Mike Jackowski to rebuild Allstate’s Claims Processing Systems – Next Gen. Well, he’s doing it; and has been for a few years, bankrupting Allstate (as they release 100+ IT resources) with his cost overruns and overcommitted deployment schedules. That handwriting was on the wall when he step into that position at Allstate and fired 85% of the IT Contractors (I did NOT make that “cut list” however) in claims systems and then said, “We don’t have anyone who can build the NextGen System. Hey! We’ll hire Accenture contractors to do it.”
I see it as a big time exercise undertaken by HP to bridge gap between itself and IBM. Just two years back HP was eyeing CSC but somehow the deal did not go thru. This time with EDS, it looks more official and on positive lines. With all MNCs trying to get a bigger pie of outsourcing revenues, this would definately give HP a strong foothold in India where currently IBM leads in terms of MNC's marketshare. I also foresee a similar kind of exercise from IBM now and who knows which company is in the hitlist.
Shares of HP fell 7 per cent at one stage yesterday, adding to a slide of 5 per cent on Monday after HP agreed to pay $13.9bn for EDS. This fall in stock price wiped out several billion dollars in market capitalisation, suggesting that investors were quite sceptical of Mark Hurd's biggest deal in three years as CEO. Do not you think that this transaction is yet another weak attempt of HP to do something meaningful in the market?
Merging the lousy performing EDS with the weak HP services unit does not bode for better health. The leaders are Infosys, TCS, Cognizant and WiPro. HP needs to innovate and better develop its global delivery model - not try to see if it can "fix" the badly performing EDS. Read more at http://www.ThePhoenixPrinciple.com
It means that the Mainframe error has finally come to the end of its life cycle in Enterprise business computing :). Now let's hope their next target is GE Appliances and/or an Home/Business HVAC company. Think of what a PC centric smart home/business could do about reducing our energy consumption and use of fossil fuels :). Ha, by knocking out mainframes they are already on track to reducing wasted energy consumption :) LOL...
I agree with Judith on most of her comments. May I add one additional aspect that IS and IT professionals may want to consider.
The financially driven merger will make HP-EDS enter a one to two years period of turmoil to achieve it. This could be dangerous for the new consortium. Such a merger is a major challenge because of the differences in culture (people versus product oriented values). Other major players would certainly want to benefit from this period to increase their footprint which will bring additional pressure to the merger process.
Delicious
Digg
reddit
Facebook
StumbleUpon