HP Says EDS Deal Won't Impact Channel Commitment

Hewlett-Packard's $13.9 billion purchase of systems integrator EDS will more than double the size of HP's services business and could pose a potential challenge to the company's current channel-oriented sales model in the enterprise services space. However, Mark Hurd, HP's CEO, said in a media briefing shortly after the deal was announced that HP remains strongly committed to its channel partners.

Hewlett-Packard's $13.9 billion purchase of systems integrator EDS will more than double the size of HP's services business and could pose a potential challenge to the company's current channel-oriented sales model, at least in the enterprise services space.

However, Mark Hurd, HP's CEO, said in a media briefing shortly after the deal was announced that HP remains strongly committed to its channel partners.

"Our commitment to channel partners is inherent in the very DNA of Hewlett-Packard," he said. "I doubt that there's going to be anything but the best goodness in the content of that….I don't see anything but goodness out of this."

Hurd then urged a reporter to deliver a message to HPs channel partners: "Please remind them how much I love them."

It appears likely the greater competition the acquisition poses is to other large integrators and service companies such as IBM Global Services, BT Global, Accenture, Computer Sciences Corp. (CSC) and others. Some of those integrators could be thrown into play as acquisition targets in the aftermath of the EDS deal.

HP intends to purchase EDS at a price of $25.00 per share, ranking the deal as HP's biggest since its $19 billion buy of Compaq in 2002.

The acquisition marks the culmination of several years of effort by HP to expand its service business, and makes a giant in the space even bigger,  effectively doubling its revenue from the business, which amounted to $16.6 billion in fiscal 2007.

The companies said combined revenues for both services businesses were $38 billion. Head count at the two companies is 210,000 employees across more than 80 countries, though executives said some reductions may be necessary through the transaction.

HP said it intends to maintain the EDS brand by establishing a new HP company division headquartered at EDS's existing executive offices in Plano, Texas, and led by Ronald A. Rittenmeyer, EDS' chairman, president and CEO.

The addition of EDS might also catch Sun Microsystems and Dell Computer flat-footed, because they tap EDS (EDS) for customer service.

"Today's transaction is compelling strategically and commercially ... and it fulfills our stated objective of expanding in the services area," said Hurd,  during a conference call. He added that the deal would expand HP's offerings especially in areas like application outsourcing and verticals including government and manufacturing.

While the deal could add strength in a few areas, the acquisition won't significantly change the direction HP is taking in its services unit, Hurd said. "There's a tremendous leverage you get from scale," he said. "Many functions [EDS does] today, we can help them take advantage of that scale. We'll run basically the same playbook as we [did] at HP. None of the synergies here are anything more than we've done at HP."

Moreover, executives from both companies said they expect the deal would enhance HP's service arm without significantly cannibalizing either company's existing relationships or capabilities. Added Rittenmeyer, "the [customer] overlap is actually not very extensive. There are some customers where we are in the same space but they are very few and far between. We are very complementary in the space today."

Executives noted both companies have also worked together either jointly servicing clients or in other relationships.

The services sector is relatively stable and offers much higher margins than the commodity PCs and printers that are a huge source of HP's revenue.

HP has been searching for acquisitions to help it boost its service revenues. In 2000, it terminated talks under then-CEO Carly Fiorina to buy the consulting business of PricewaterhouseCoopers (PWC) for about $18 billion. Instead, HP formed a marketing alliance with PWC to sell supply chain software and create an Aviation Solution Center through which the two would offer business solutions for aviation companies.

Two years later, IBM paid $3.5 billion in cash and stock for the global management consulting and technology services unit of PWC.

(This article was adapted from Internetnews.com with additional material from Al Senia.)

 

TAGS: Dell,HP,Enterprise,EDS,system integrators



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