All the Pieces Under One Roof

HP Building a One-Stop Data Center Shop

Hewlett-Packard is making a major play to become the world's No.1 go-to shop for building a next-generation data center.

HP is spending a tremendous amount of cash ($13.9 billion) on its acquisition of Electronic Data Systems in order to own that company's world-leading IT outsourcing services, but the whole deal was set up a few months earlier by a much smaller, almost under-the-radar acquisition.

HP is quietly building its own in-house, all-purpose build-a-data center capability, thanks both to the impending purchase of EDS and the recent acquisition of EYP Mission Critical Facilities, the second-largest data center designer and builder in the U.S. market.

"The key to both transactions: Each of the new additions brings industry credibility that could not be obtained in any other way," Validus DC Systems Chief Operating Officer Ron Croce, a longtime industry observer, told eWEEK. Validus is a startup specializing in DC power distribution.

"Both of those companies [EDS and EYP] are well respected in their sectors. HP has great credibility on its own but it didn't have the expertise in these areas that these two established companies bring to the table. If you're a CIO looking to invest a lot of money in a new-generation data center, you tend to look to the best in the field to help you," Croce said.

Data center refreshes coming

A lot of new data center construction is in the offing, Croce said.

"Data centers generally run in 10-year cycles. A lot of them were built in the late '90s for the Internet boom, and now those are way outdated-especially when it comes to conserving power," he said. "It's very expensive to renovate the old ones ... much of the time, it's better and more cost-effective just to build new ones, using the new, power-efficient systems."

EDS, with 139,000 employees, is the world pure-play leader in outsourced IT services, with a current market cap of around $10.5 billion. HP dabbled a little in outsourced services in the past, but now it's really on the map in that market.

EYP Mission Critical Facilities was a well-established, privately held company providing data center consulting services. HP announced the acquisition Nov. 12, 2007, with industry sources indicating that the price was in the $200 million range. That deal closed on Feb. 8.

All the Pieces Under One Roof

EYP has 350 staff members and 13 offices in the United States and the United Kingdom. It plans, designs, builds and supports large-scale data centers. At the time of the transaction, HP executives said EYP's emphasis on designing energy-efficient facilities would complement its own data center technology, such as HP Dynamic Smart Cooling.

With both EYP and EDS under its roof, HP now can claim to be a one-stop data center-making center. EYP can design and build a data center, and EDS can stock, provision and deploy everything inside it. Both new HP divisions offer ongoing maintenance services.

And, by the way, mother ship HP has all those next-generation C-class blade servers and ancillary services ready and waiting if needed. Of course, with profit margins on services averaging about 40 percent per deal and hardware margins about half that, HP can afford to be quite magnanimous and let another company's servers fill those racks-if so decided by the customer.

Can HP's EDS remain vendor-neutral?

Customers certainly will like the options.

"Look at what IBM has already done: They manage products from a whole range of technology providers. And, to be honest with you, HP will have to play the game in that way. If they overemphasize their own products, they could shoot themselves in the foot," Ben Pring, a Gartner analyst in the IT services group, told eWEEK.

The reality is, Pring said, is that "banks, the airlines and telecommunication companies have very complex heterogeneous environments and you simply cannot play a single technology card."

So this is what CEO Mark Hurd, CIO Randy Mott and all their lieutenants have had up their sleeves? The EDS deal reportedly was in the works for about a year.

"Of course, that's been their strategy all along," David Hill, senior analyst with the Mesabi Group, told eWEEK, referring to HP. "They and IBM are very big on building the next-generation data center. These acquisitions make a lot of sense that way."

So IBM, which owns the world's largest IT services business, may soon be feeling the heat. IBM doesn't own an EDS-not even a high-end data center design firm. Everything is handled in Global Services, which certainly is nothing to be sneezed at.

Don't forget, there's a lot to be done before all this begins swinging into action in the marketplace. But it will be interesting to see how this all plays out.

So many data centers to build-so little time.