Hurd: EDS Deal Expands HP's Enterprise Reach

Hewlett-Packard's CEO says he believes the EDS acquisition will make the company's service offerings stronger.

Hewlett-Packard CEO Mark Hurd believes that the $13 billion acquisition of Electronic Data Systems will help build out HP's enterprise services offerings and "accelerate" the company's reach into new accounts, he said.

In a May 20 conference call with reporters to announce HP's 2008 second-quarter financial earnings, Hurd offered his thoughts on the upcoming acquisition of EDS. While Hurd could not say when the deal would close, he noted that HP is already looking at ways to integrate its software and services portfolio with EDS' business.

During his comments, Hurd indicated that HP needed to do more to improve its services business, especially in the United States, where HP is far behind market leader IBM. Hurd implied that HP will streamline costs to make the acquisition profitable for shareholders as soon as possible. Right now, EDS has more than 130,000 employees.

Several analysts have said they believe that HP, through its acquisition of EDS and other companies, is looking to build a services division that will create an all-in-one shop for building state-of-the art data centers. The acquisitions also may give the company a major opportunity to chase IBM's services division, which has set standards for the industry.

The issue of services was on Hurd's mind when he spoke to journalists.

"As I said before, HP is great in engineering and customer support but we have a coverage problem," Hurd said.

"We expect this deal to immediately double our enterprise share of wallet and create a platform that gives us opportunities for new business growth," he added. "Second, we believe the cost business synergies from this business combination are significant and make this transaction financially attractive even without the expected revenue benefits. The cost opportunities take many forms, but make no mistake, we will get the cost right and we will create value for our shareholders."

When asked about how HP would integrate EDS' business, Hurd said he saw ways to combine his company's software with the services that EDS offers. Hurd added that software products from HP's earlier acquisitions of Opsware and Mercury Interactive would blend well with EDS' offerings.

"EDS is one of the biggest business application outsourcers in the world," Hurd said. "In fact, it's the biggest one, and they do a lot of application testing. The biggest application product in the world is Mercury, so ... alignments like that are pretty strategic and you will continue to see more and more alignment of software and services as you see the evolution of [the] services industry."

For the second quarter, which ended April 30, HP Software was one of the most profitable segments of the company. Overall, the division's revenue grew 28 percent year-over-year to $727 million, which seems to show that the company is moving beyond its traditional role as a hardware vendor.

The announcement that HP would acquire EDS capped an overall solid financial quarter, in which HP's revenues hit $28.3 billion, an increase of 11 percent from the $25.5 billion the company pulled in during the same time in 2007.

HP's net profits for the quarter were $2.1 billion or 80 cents per share. That compared with the $1.8 billion, or 65 centers per share, profits the company announced in the second quarter of 2007.

For the third quarter of 2008, HP said it is expecting revenue between $27.3 and $27.4 billion.

During the second quarter, about 70 percent of HP's revenues came from outside the United States, which is seen as a way to boost the company's bottom line while the U.S. economy remains sluggish. The company's revenues within the United States during the quarter grew 4.4 percent to a total of $11.1 billion.