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HP and EDS by the Numbers: 2 + 5 = Data Center Giant

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You don't need to be a fancy industry analyst to understand why Hewlett-Packard's acquisition of EDS makes sense. Third grade math is enough.

A timely report by Gartner on the revenue raked in by IT service providers in 2007 makes it oh so clear. IBM remains king. Big Blue garnered 7.2 percent of the market for a whopping $54 billion, more than double and then some of the revenue of its closest competitor, EDS, which managed a cool $22 billion. HP comes in a distant third, pulling in less than one-third of IBM's services take. IT%20Services%20Revenue%202007.jpg

Do the math ... OK, I'll do it for you ...

$22 billion + $17 billion = A Lot of Money ($39 billion, to be more precise.)

With the acquisition, HP more than doubles its services wallet to nearly $40 billion overnight and becomes a challenging No. 2, the likes of which IBM hasn't seen in some time.

More than Scale But simple arithmetic fails to consider that one plus one doesn't always equal two, and this acquisition is about more than scale.

eWEEK reporter Chris Preimesberger and BusinessWeek's Rob Hof did just that math and unearthed a quiet acquisition made in November -- HP paid $200 million for EYP Mission Critical Facilities, a data center design firm. Preimesberger and Hof are on the same path, but stop at different benches.

Preimesberger proposes that HP is building out a one-stop data center shop. With EYP and EDS, HP becomes the sole vendor capable of planning, designing, building, equipping and supporting large-scale data centers from start to finish and at an opportune time in the market -- a time of major data center refreshes. A good chunk of existing data centers were built out in the late 1990s as the dot-com bubble bulged and now are nearing the end of life.

If HP can sell the customer on the idea that one-stop shopping really matters (and I'm convinced neither that it does nor that HP can make the case), HP has a fair shot at displacing IBM and others as the systems integrator of choice for data center refresh and replacement. The theory dovetails with another trend, cloud computing, which is driving much of the data center business as companies like Google and Yahoo stockpile servers and motherboards by the thousands in anticipation of users sending data to their clouds. HP is after those customers' business as well.

Hof's theory is a bold one. He hypothesizes that HP is building its own cloud. He considers HP's acquisition of EDS and EPY alongside a July purchase of Marc Andreessen's Opsware, a data center automation software firm, as well as a data center-as-a-service initiative HP announced in March, and reports that HP plans to buy 24 data centers from British Telecom for about $3 billion.

By Hof's math, HP wants to be the first and last number in the data center equation.