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HP takes on IBM with EDS deal

The acquisition could reshape the tech landscape

Prasanto K Roy

Wednesday, May 14, 2008

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If HP acquires EDS, it would be a major coup for HP, and could reshape the tech landscape.

For one thing, it will allow HP compete more effectively with Dell globally, and especially in the USA.

Dell and EDS (both Texas-based) are strong allies, and bid for big contracts together, one providing computers, the other services. An HP-EDS deal would be a blow for Dell.

For another, it will bring HP into close competition with IBM.

IBM made the transition from products to 'systems and services' several years ago, and even spun off its PC business to Lenovo.

HP however remained a largely product company, with distinct product lines and divisions: PSG (personal systems), IPG (imaging and printing) and TSG (technology solutions group). It is though the last of these, TSG, which sells servers and storage, that HP has tried to ramp up services.

However, success has been limited for HP, with services contributing to a small fraction of total revenue and profit. Much of HP's bottom line comes from consumables - ink and tones cartridges. So a big services boost through an acquisition was always on the cards.

In India, HP has done well in services, much above its global norm. But even so, services brought in 11 per cent of the Rs 9,663 crore pie in 2006-`07. For IBM India, services were 37 per cent of its Rs 3,380 crore pie, making the latter more profitable than HP even in India. (All figures are Dataquest estimates.)

So globally, at least two tech majors, Dell and IBM, would be worrying about this deal, and hoping it does not happen. If it does, it would significantly alter the global tech landscape, and it would cause some worry to the Indian services majors such as TCS and Infosys, too, ramping up the competitive pressure.

HP is likely to keep the EDS operation distinct, and continue to call it EDS (but with a "An HP company" qualifier).
And unlike when HP bought Compaq, the synergies are at least very clear between HP and EDS. That does not however mean integration will be easy, especially if synergies are to be leveraged for cost savings.

This is a mammoth merger of two very diverse cultures, more diverse than HP vs Compaq.

(Roy is president & chief editor, ICT Publications, CyberMedia).

©CyberMedia News

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Shiju said on 5/17/2008 3:29:32 PM:
The deal is a smart one according to me. It kills many birds with one stone. check out shiju-invent.blogspot.com to know more.

to Shiju

Surjeet said on 5/16/2008 3:00:00 PM:
Must read

to Surjeet

ABC said on 5/15/2008 11:15:56 PM:
Agreed. I had a similar analysis at my blog. thoughtdealership.wordpress.com

to ABC

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