Tuesday, May 13, 2008

HP Is Buying EDS, aka, "HP Global Services," for US$13.9 Billion

Big Blue's biggest weapon has long been its services arm. As the saying goes, when you buy enterprise "solutions" from IBM, the bulk of the sale is the van full of services folks with packed suitcases, ready to move into your office for good. It’s a simple, yet Faustian, bargain: You give them all your money, and they take care of everything. Forever.

IBM Global Services differentiates IBM from, say, Microsoft, which sells its software through the channel, leaving the lucrative services business for partners. In a few cases, as with its Avenade joint venture with Accenture, Microsoft does capture some services revenue, but otherwise, Microsoft doesn't play in that world.

Hewlett-Packard is another Big Blue competitor that just doesn't measure up when it comes to services and service revenue. Eight years ago, HP almost bought Pricewaterhouse Coopers, but the deal fell though. (IBM snapped up PwC a couple of years later.)

Today, HP is ready to try again. When the word first slipped out on Monday that HP was negotiating to buy Electronic Data System, EDS’ shares soared 28% on the news, while HP’s fell by 5%. That tells you what Wall Street thinks of this.

I share Wall Street’s skepticism. This doesn't seem like a good deal. But then again, I'm skeptical about HP's ability to full advantage of large acquisitions. HP never achieved the value it could have from the Compaq fiasco. The jury is still out as to whether HP and Mercury Interactive are better off a single company. Certainly, Mercury's competitors remain delighted about that acquisition — and are profiting by the amount of business they picked up because of it.

With this deal, much comes down to execution. It’s clear that HP chief honcho Mark Hurd is better at execution than his predecessor, Carly Fiorina. Let’s see if he can pull this one off.

— Alan Zeichick

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