A Newer HP?

Opinion: Is HP still chasing after the wrong golden egg?

Just when you thought you had the "new HP" figured out, Hewlett-Packard CEO Mark Hurd is reported to be exploring a deal to acquire a large player in the outsourcing industry, Computer Sciences.

HP has been chugging along quite well since Hurd took over for ousted CEO Carly Fiorina in April. Hurds strategy of cutting costs; focusing business units; and growing through small, niche acquisitions certainly has pleased investors, as HPs stock is up about 40 percent over the past year. CSC could cost as much as $12 billion, with the help of private equity investors, and mark the start of a major consolidation in the outsourcing services industry, Senior Editor Jeffrey Burt reports in this weeks coverage.

It wasnt too long ago that HP spent $20 billion on Compaq Computer, which itself had spent about $10 billion on Digital Equipment in 1998—primarily for DECs stalwart services business. Thats a lot of consolidation for $15 billion in annual revenue, about 17 percent of HPs current total revenue and still well behind leader IBM Global Services $46 billion business. Back in 2001, when the HP-Compaq deal was announced, eWEEK quoted one analyst saying, "They are taking two services organizations that have been the tail on the hardware dog"—and, one could argue, still holding back HP from realizing its true potential in the digital imaging business.

If HP is serious about challenging IBM, EDS and Accenture in outsourcing and services, then this would be a bold move, but, given past results, it would not guarantee the kind of return that would make IBM nervous. The question remains: Is HP still chasing after the wrong golden egg?

Theres no question about China: Its booming, and U.S. technology companies are stumbling over one another to gain market share and office space. This week, in a special report, eWEEK Senior Editor Darryl K. Taft gives readers two pictures of Chinas IT industry from a trip he took to BEA World Beijing last month. Tech companies are finding out that buyers have their own "unique requirements," BEA Chinas CTO Sicheng Yu told Taft.

Though the exact numbers are not quite clear, China is producing enough computer and software engineers to give local R&D ample talent to take on all challengers in next-generation technology. With the ultramodern Zhongguancun Software Park as the setting, its clear the IT future is here. Now.

Send comments to scot_petersen@ziffdavis.com.

Scot Petersen

Scot Petersen

Scot Petersen is a technology analyst at Ziff Brothers Investments, a private investment firm. Prior to joining Ziff Brothers, Scot was the editorial director, Business Applications & Architecture,...