With EDS, HP Buys Its Way Into Outsourcing Big Leagues

[OhioChick]

The $13.9 billion deal creates the second-largest IT and business services company.

By Paul McDougall Mary Hayes Weier
InformationWeek
May 17, 2008 12:00 AM (From the May 19, 2008 issue)


It looked like the deal that would vault Hewlett-Packard (NYSE: HPQ) into the IT services big leagues: a 10-year, $3 billion contract to manage tech operations for global consumer products maker Procter & Gamble. "We're popping a few bottles of champagne around here," HP services chief Ann Livermore told InformationWeek in 2003, when the deal was struck.

Since then, HP's services business has grown to $16.6 billion in annual sales, but it has had little success parlaying the P&G victory into more whopper contracts, leaving it an also-ran in the market. The company's legendary garage-shop DNA didn't come with an outsourcing gene. CEO Mark Hurd tacitly admitted as much last week when he announced an agreement to buy EDS for $13.9 billion. "This fulfills our strategic objective of expanding in the services area," Hurd said.

Under the merger plan, EDS (NYSE: EDS) CEO Ron Rittenmeyer will lead a new organization called "EDS--an HP company" and report directly to Hurd. Livermore will continue to oversee HP's Technology Services Group, but EDS, still based in Plano, Texas, will lead the outsourcing charge. In one stroke, the merger will create the world's second-largest IT and business services company, with combined revenue of $38 billion last year, still far behind IBM, with $54 billion, but ahead of Accenture, with $21 billion. HP's EDS unit will employ 210,000 people--pending an inevitable downsizing.

The deal clearly gives HP's services business scale, HP CTO Shane Robison notes. "One of the things you need in the services business is people with a lot of vertical expertise and operational expertise," Robison says, adding that EDS is strong in the financial services, energy, health care, and government sectors. EDS would also give HP blue-chip customers such as American Airlines, Bank of America, and Royal Dutch Shell.

http://www.informationweek.com/news/services/business/showArticle.jhtml?articleID=207800401

[BeatleBoot]

1. It's Huge, indeed.

[unc70]

2. This reminds me more of the old Digital Equipment Corp days

Before Wall Street took down DEC, it was much more involved in software services than HP was and more so than the venture looters who destroyed much that made DEC special before selling the remains to their buddies.

Now that C.F. is off pushing McCain, maybe HP will do better.