Hewlett-Packard Co.'s most recent foray into the enterprise services market was, for the most part, an unexpected one, most industry observers agree. But when it announced its intention to acquire computer services stalwart EDS in May, HP, in effect, became the number two provider in the overall services market. The $13.9 billion deal, scheduled to close in the second half of the year, calls for Palo Alto, CA-based HP to merge its outsourcing operations into the Plano, TX-based EDS, to form a new entity to be called EDS, an HP company.
The combined HP/EDS will boast IT services revenue of $38 billion (double HP's former services revenue), positioning the new entity behind IBM and its market-dominating $54 billion position. Through the acquisition, HP gains access to EDS' client base across a variety of industries, 43,000 additional globally dispersed employees, and the benefit of EDS' strength in certain areas, including applications outsourcing.
EDS, in turn, gains a corporate parent with the resources to help mitigate some of the financial uncertainty that has plagued the company in recent years. But despite the many positives attending the deal, questions remain, particularly with respect to integrating the two cultures while leveraging the strengths each company brings to the union, and doing so on a global stage.
Although EDS employs roughly 40,000 personnel in its "Best Shore" operation, a services strategy that blends onshore, near-shore, and offshore outsourcing delivery capabilities on a client-by-client basis, historically the company has lagged behind such competitors as IBM, said Gartner analyst Dane Anderson. "As the offshoring phenomenon started to take hold around the turn of the century, most multi-nationals thought it eventually would pass, but, in fact, it continued to gain steam," he said. "IBM and Accenture have been decidedly more aggressive at developing a globally integrated enterprise."