Monday, May 12, 2008

HP + EDS = A Leading Global IT Services Player?

Now that Microsoft has withdrawn the $40 plus billion offer to buy Yahoo, we hear about another acquisition in the tech space. HP is supposedly in talks to buy EDS for about $13 billion. EDS shares jumped 28% to give it a market capitalization of over $12 billion today. On the face of it (and assuming that HP actually consummates the deal without much prolonged proxy battle), this is a great coup for HP and its chief, Mark Hurd. HP has been slowly gaining on IBM but has been lagging in the services segment. In fact, HP's services was mostly wrapping services around its products--far different from global IT services companies such as IBM, Accenture, Tata Consulting Services, Infosys and Wipro.
How should we think about this corporate combination? If it is purely gaining scale on the established model of outsourcing, this may not do much for HP. The domestic, local outsourcing model (i.e., shifting employees to service providers to reap benefits of specialization and economies of scale) is giving way to delivering services on a global footprint. Local outsourcing model is too expensive and the corporate buyers know it too well.

So, this is more than gaining high-margin customers that EDS currently service. What Mark Hurd needs to do is to use this acquisition such that HP + EDS becomes a leading global IT services player. I was half-expecting EDS to be acquired by TCS, Infosys or Wipro to expand their traditional Indian roots. But they do not have the same level of market capitalization as HP. Infosys and Wipro are capitalized at around $25 B and @20 B respectively. Now that HP (capitalized around $115 B) seems to be closing in on the deal, it will be interesting to see if the combined entity simply continues the old outsourcing model or whether Hurd is able to innovate a new form of global services that combines different types of skills and competencies on a global basis. Given Hurd's penchant for ruthless efficiency, I expect this to be driving HP's globalization plans.

Hurd seems to be remaking HP the way Lou Gerstner transformed IBM in the 1990s.


Subbaraman Iyer said...

Your assessment is interesting. It would be interesting to see how this integration unfolds as HP the acquirer has been overly risk averse in the IT services space, being satisfied with delivering services around their products. EDS has always had a more risky cowboy style approach. Now given the fact that EDS has done more higher-end work than HP, perhaps there could be areas where culture integration could come in the way.

Many Indian companies have the capacity to buy global IT outsourcing players. There have been rumors about Infosys and TCS acquiring Cap Gemini for instance. I guess the Indian companies either view the acquisition to be incongruent with their offshoring model or they are confident of being able to manage such a large operation.

My comments on this acquisition can be found here.

Anonymous said...


resort in the philippines said...

black mold exposureblack mold symptoms of exposurewrought iron garden gatesiron garden gates find them herefine thin hair hairstylessearch hair styles for fine thin hairnight vision binocularsbuy night vision binocularslipitor reactionslipitor allergic reactionsluxury beach resort in the philippines

afordable beach resorts in the philippineshomeopathy for big with great mineral makeup bargainsmineral makeup wholesalersprodam iphone Apple prodam iphone prahacect iphone manualmanual for P 168 iphonefero 52 binocularsnight vision Fero 52 binocularsThe best night vision binoculars here

night vision binoculars bargainsfree photo albums computer programsfree software to make photo albumsfree tax formsprintable tax forms for free craftmatic air bedcraftmatic air bed adjustable info hereboyd air bedboyd night air bed lowest pricefind air beds in wisconsinbest air beds in wisconsincloud air beds

best cloud inflatable air bedssealy air beds portableportables air bedsrv luggage racksaluminum made rv luggage racksair bed raisedbest form raised air bedsaircraft support equipmentsbest support equipments for aircraftsbed air informercialsbest informercials bed airmattress sized air beds

bestair bed mattress antique doorknobsantique doorknob identification tipsdvd player troubleshootingtroubleshooting with the dvd playerflat panel television lcd vs plasmaflat panel lcd television versus plasma pic the bestThe causes of economic recessionwhat are the causes of economic recessionadjustable bed air foam The best bed air foam

hoof prints antique equestrian printsantique hoof prints equestrian printsBuy air bedadjustablebuy the best adjustable air bedsair beds canadian storesCanadian stores for air beds

migraine causemigraine treatments floridaflorida headache clinicdrying dessicantair drying dessicantdessicant air dryerpediatric asthmaasthma specialistasthma children specialistcarpet cleaning dallas txcarpet cleaners dallascarpet cleaning dallas

vero beach vacationvero beach vacationsbeach vacation homes veroms beach vacationsms beach vacationms beach condosmaui beach vacationmaui beach vacationsmaui beach clubbeach vacationsyour beach vacationscheap beach vacations

bob hairstylebob haircutsbob layeredpob hairstylebobbedclassic bobCare for Curly HairTips for Curly Haircurly hair12r 22.5 best pricetires truck bustires 12r 22.5

washington new housenew house houstonnew house san antonionew house venturanew houston house houston house tx