Industry analysts contacted by eWEEK generally say they believe that Hewlett-Packard’s forthcoming $13.9 billion acquisition of Electronic Data Systems-announced officially on May 13-is a good move for both companies, although there will be the usual integration snafus over vendor neutrality issues, business lines, culture shock and layoffs.
Analysts have also said it is a good move overall for customers and potential customers, because the combined company will offer them a greater palette of products and services from which to choose.
A combined HP-EDS will certainly put a new kind of pressure on IT services leader IBM. IBM’s $54 billion-per-year Global Services arm-by far the largest in the world-will start to feel the heat from the combined HP-EDS entity, which will start out at a net worth of $38 billion per year.
For high-end enterprise IT services before this merger, the market consisted of IBM and everybody else. Afterward, it will be IBM, HP-EDS-and then everybody else.
IT Swiss army knife is all can openers
The biggest unanswered question on people’s minds involved vendor neutrality for EDS and its current customers. EDS for years was a sort of IT Swiss army knife in that it used whatever products and services from other vendors were needed to complete its job correctly and within budget constraints.
With its impending new ownership by one of those key vendors, that picture may change.
“We don’t know what will happen with EDS’ vendor neutrality,” Rick Sturm, founder and president of Enterprise Management Associates, told eWEEK.
“Overall, my take is that this transaction sounds great in theory, but there many potential pitfalls. This is one of them. For example, EDS has largely standardized on management software from CA. Will they migrate to HP software now? That would take a long time and a lot of money,” Sturm said. “On the other hand, it doesn’t make sense to help support a competitor with license and maintenance fees. That is just one small point regarding neutrality.”
EDS, in fact, has a large current contract with CA for network and systems management in direct competition to HP’s OpenView. CA had no immediate comment May 13.
At least initially, Sturm said, there will be little noticeable impact on customers from the deal.
“There will probably be some service impacts once the organizations truly merge and consolidate resources,” he said. “[HP CIO] Randy Mott has been driving data center consolidation and standardization. I expect that effort will be renewed with EDS. Disruptions are inevitable with such migrations.”
EDS Must Follow IBMs Lead
Nobody questions that HP certainly will play a major role in forthcoming EDS contracts.
“Certainly we can expect that in the big outsourcing contracts that EDS has, that the sales guys and account reps are going to be including HP more and more in the conversations. Also, in the conversations with the CIO and IT managers who are looking at the next wave of technology investments,” Ben Pring, a Gartner analyst in the IT services group, told eWEEK. “But the truth is, 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.”
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.”
In the long run, HP’s and EDS’s services should fit together pretty well, Greg Schulz, founder and senior analyst at The StorageIO Group, told eWEEK.
“HP has had a services arm for some time-some of it being hosting, some of it being managed services, including backup, some of it being on-site break/fix/install/maintain and some of it being consultative-while EDS is known for hosting or being a managed service provider and outsourcing firm,” Schulz said.
EDS has increasingly over the years taken on more projects ranging from desktops to data centers, servers and storage across different applications and business sectors, Schulz said.
“Consequently, a combined HP-plus-EDS enhances each other’s opportunities and capabilities to collaborate and compete as a combined entity versus competing with each other,” Schulz said.
Certainly, cultures and lines of business will need to be ironed out, Schulz said. “What will be interesting to see [is] if HP aligns some of their traditional services and hosting solutions under an EDS business unit model, or, [if it will] force EDS to fit in under an HP managed services model, not to mention what the head count and integration synergies will be,” he said.
If HP plays this smartly, leveraging EDS capabilities and skill sets while equipping EDS with more services and solutions capabilities, the combined company could be a force to reckon with, Schulz said.
“It could enable more effective solutions for their customers and partners; if not, then two organizations could become bogged down enabling their combined competition to take the advantages,” he said.
Infrastructure company with a services arm
It was no secret that HP was looking to add to its services group, and this move was rumored for months, analyst Zeus Kerravala of The Yankee Group told eWEEK.
“When they looked at the landscape for who would give them the biggest bang for the buck, it obviously was EDS,” Kerravala said. “Overall, I think it’s a good move for HP.”
He continued, “I’ve always thought of HP as an IT infrastructure vendor that happens to have a services arm, and I’ve always thought of IBM as a services-led company that happens to have an infrastructure division.
“And the two are different: One’s trying to sell you a product in support of the services, the other is actually trying to improve your business and they happen to have some product to fulfill that, where they might go use somebody else’s.”
EDS will remain its own division at HP and report directly to CEO Mark Hurd.