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By Jeffrey Burt  |  Posted 2006-01-05 Print this article Print

Such a deal would be surprising to a degree, he said. HP is first and foremost an IT innovation company, and there tends to be little innovation in the outsourcing business. Still, outsourcing offers benefits such as long-term customer relationships and recurring revenue, and the time is right for HP to make a move to bolster that business. The outsourcing business is a tough one, with a lot of players, slow growth and some low valuations, which will lead to consolidation in the industry, del Prete said. "[The deal] does have some risks, but in the absence of growth in outsourcing at the moment, companies will begin to pair off," he said. If thats HPs intentions, its smart that the company is doing it now.
In a report issued Thursday, Bryan Keane, an analyst with Prudential Equity Group LLC, said HPs emergence as a possible buyer of CSC was surprising. When Mark Hurd took over as CEO last year, he indicated that HP—which still was dealing with the $19 billion purchase of Compaq Computer Corp. in 2002—would not pursue another major acquisition in the near term. The company had made some smaller deals to bulk up its management software capabilities, including buy Peregrine Systems Inc. and RLX Technologies Inc. However, he appeared to soften that stance during a meeting with analysts in December, Keane wrote.
Click here to read eWEEKs interview with Mark Hurd. He also wrote that HP needs to grow its services business if it intends to compete with the larger vendors. HPs services unit accounts for about 20 percent of the companys overall business, he said, but "is currently perceived as a weak player in the services market relative to IT services giants like IBM, EDS and Accenture [LLP]." Keane also outlined several challenges for CSC and the services business in general, including possible reductions in IT spending by government agencies and large enterprises, weak demand for such businesses as systems integration and consulting—about 20 percent of its overall revenues—and its businesses in what Prudential calls weak international markets. During the analyst meeting in December, Hurd continued to lay out his plans for HP. He repeated his earlier statements that the company had no intention of spinning off any of its other businesses—such as PCs or printing—and that he would continue focusing on ways of making HP more streamlined, financially sound and a better company to do business with. Last summer, Hurd made several moves designed to create a "simpler and nimbler HP," including eliminating the Customer Solutions Group, redistributing the sales force and cutting about 14,500 jobs—about 10 percent of HPs global work force. Check out eWEEK.coms for the latest news in desktop and notebook computing.


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