HP Preps for Services Battle

Buying EDS would make HP an IBM challenger.

IT giant HP plans to buy EDS (Electronic Data Systems) for between $12 billion and $13 billion, according to reports in the Wall Street Journal May 12. The acquisition will likely help add to HP's services portfolio, which could mean a new set of options for customers.

While HP has continued to improve its offerings from PCs to servers to storage under the leadership of CEO Mark Hurd during the past several years, services is one area where the company is looking to catch up to IBM's much-heralded Global Services division. While HP pulled in about $16 billion in revenue from its services division in 2007, IBM managed to collect about $57 billion in the same year.

After IBM, EDS is one of the largest providers of IT services and outsourcing in the world, and it has government contracts with one dozen countries, which would give HP access to new customers. It would also give HP a chance to provide a wider range of services to its existing customer base, while offering a better counterweight to what IBM already offers.

The benefits to HP's services portfolio are profound, but it might take some time for customers to realize those benefits. At $13 billion, the acquisition would be the largest for HP since the company bought Compaq in May 2002.

While the acquisition of Compaq eventually allowed HP to challenge Dell in the worldwide computer market, it took several years for HP and Compaq to comfortably merge their operations into a formidable market force.

For most of his tenure as CEO, Hurd has focused his energies on acquiring companies to fill out HP's software and data center automation portfolio, such as Mercury Interactive and Opsware. The money that HP is reportedly offering for EDS would be a major investment that would almost recreate the services division.

HP is expected to release its quarterly report on May 15.