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New Delhi
May 15, 2008
If HP acquires EDS, it would be a major coup for HP, and could reshape the
tech landscape. For one thing, it will allow HP compete more effectively with
Dell globally, and especially in the USA.
Dell and EDS (both Texas-based) are strong allies, and bid for big contracts
together, one providing computers, the other services. An HP-EDS deal would be a
blow for Dell.
For another, it will bring HP into close competition with IBM.
IBM made the transition from products to 'systems and services' several years
ago, and even spun off its PC business to Lenovo.
HP however remained a largely product company, with distinct product lines
and divisions: PSG (personal systems), IPG (imaging and printing) and TSG
(technology solutions group). It is though the last of these-TSG, which sells
servers and storage, that HP has tried to ramp up services.
However, success has been limited for HP, with services contributing to a
small fraction of total revenue and profit. Much of HP's bottomline comes from
consumables-ink and tones cartridges. So a big services boost through an
acquisition was always on the cards.
In India, HP has done well in services, much above its global norm. But even
so, services brought in 11 percent of the Rs 9,663 crore pie in 2006-07. For IBM
India, services were 37 percent of its Rs 3,380 crore pie, making the latter
more profitable than HP even in India. (All figures are Dataquest estimates.)
So globally, at least two tech majors-Dell and IBM, would be worrying about
this deal, and hoping it does not happen. If it does, it would significantly
alter the global tech landscape, and it would cause some worry to the Indian
services majors such as TCS and Infosys, too, ramping up the competitive
pressure.
HP is likely to keep the EDS operation distinct, and continue to call it EDS
(but with a 'An HP company' qualifier).
And unlike when HP bought Compaq, the synergies are at least very clear
between HP and EDS. That does not however mean integration will be easy,
especially if synergies are to be leveraged for cost savings.
This is a mammoth merger of two very diverse cultures, more diverse than HP
vs Compaq. Page(s) 1
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