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On Tuesday, HP officially announced that it is buying Electronic Data Systems for $25 a share, or about $12.8 billion. HP put an enterprise value of $13.9 billion on the deal, which will more than double HP’s services revenue.
IBM have 10% market share, HP had 3%, EDS 4% - can they take 7% up to match IBM - and how will it affect Accenture (4%), CSC (3%) and Fujitsu (4%).
Simply put - did HP buy well considering that EDS have been flat on revenues since 2000.
Will the processes of each organisation allow for some quick wins in cost reduction, or will this be one where diseconomics hurts as HP were already THE vendor of choice for EDS.
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Alan,
A few years back I heard a very high-powered CEO in the high-tech sector say that "we are all in it together to beat IBM"; he was talking to a group of his peers. This is evidence that he was probably right.
Also, I don't know that HP was a "preferred" vendor within EDS; their Agility Alliance partners (Cisco, Dell, EMC, Microsoft, Oracle, SAP, Sun Microsystems, Towers Perrin, and Xerox) did not include HP.
Now, the opportunity for HP to displace lots of competing technologies and put a dent in their competitor’s revenue streams (over time) is pretty large; EDS and EMC (storage) are pretty tied at the hip when it comes to deploying storage resources. This is something that HP has all of the technologies to displace EMC moving forward; an interesting side note relates to any EMC "Centera" frames using Compliance Edition (permanent storage) these will definitely survive, funny how that technology is pretty sticky.
And also keep in mind that for the most part, EDS does not "stand-up" servers, software, or storage services inside of its data centers unless it's already paid for on the other end; so in the short-term all parties stay whole.
It will be the scrambling on "contract renewals" which on large contracts can easily start 2 years before their expiration, which should be very interesting. Vendors that have large stakes in providing the underlying equipment (and services) that services those contracts will be honing their business development skills to try to keep as much of their pie in-tact as possible. It's most likely that they will keep some but definitely not all.
What HP did not pick-up in their acquisition is the needed expertise to compete with IBM-GS on the "application" side. EDS is an "infrastructure" delivery expert; they will make sure it works, it runs like a well oiled engine; it doesn't go down; it's secure; etc. etc. etc. But if you are deploying Oracle applications suites in their data-center they will "keep it tuned and running" but at the application layer they will out-source that to another provider. So watch out for HP to make another acquisition to continue to round out their services offerings to beat IBM. That is a needed component that they did not pick up with this acquisition; the easy targets become the players that EDS uses today to outsource application monitoring and monitoring.
Good Luck,
Peter
May 2008