HP Nets Megadeals

Vendor's services unit challenges industry leaders.

HP Net
In what has generally been a tug of war between services behemoths Electronic Data Systems Corp. and IBM Global Services, the battle for outsourcings so-called megadeals now sports a new player.

Hewlett-Packard Co.s HP Services is making serious inroads, signing agreements in recent weeks leading to three large contracts worth $4.6 billion—including a $3 billion, 10-year deal with Procter & Gamble Co.

HPs success comes as EDS suffers from its missteps, troubled contracts, a Securities and Exchange Commission investigation into its accounting, and a shakeup in leadership. Still, insiders say EDS shouldnt be counted out yet. The Plano, Texas, outsourcer last week snagged a two-year, $258 million contract to upgrade the Pentagons communications infrastructure, and it closed two megadeals with ABN AMRO Bank N.V. and Bank of America Corp. in the fourth quarter of last year.

"I tend to think of [HP Services] more in the infrastructure outsourcing area. Were trying to bring the whole EDS proposition to the table. They dont have a leg up there. They have to partner for the rest," said Jeff Kelly, president of Information Technology Management Services at EDS. Kelly said that HP—thanks to the resources it acquired with its Compaq Global Services acquisition—does have an advantage in the IT infrastructure outsourcing arena.

In addition to the P&G deal, HP Services recently signed a memorandum of understanding for an IT infrastructure outsourcing contract with Telefon AB LM Ericsson, worth about $1 billion, and another memorandum with the Bank of Ireland for a $600 million IT infrastructure outsourcing contract.

But the Bank of Ireland deal could be derailed before fruition. Union workers at the bank, which plans to transfer some 500 employees to HP, voted to strike to thwart the deal.

At least one industry insider wondered whether that would have happened if IBM had won the deal and pointed to HP Services lack of experience at the negotiating table as a possible contributor to the strike vote.