What does it mean if HP buys EDS?
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 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.