HP/EDS Makes Sense

Dennis nicely captured the 3 people that I’ve read on the HP/EDS deal: Tom Foremski, Larry Dignan, and Vinnie Mirchandani:

My take is skewed by experiences I’ve seen in Europe where EDS has been removed or had its contractual relationships significantly cut back as projects have either failed, been ‘botched’ or it’s been forced to bid under onerous conditions. While everyone points to flat growth, contract cutbacks and changes in the infrastructure world, the long term problems in some of these massive contracts have made EDS a relatively target.

[From HP to take out EDS: does it make sense? | Irregular Enterprise | ZDNet.com]

This deal actually makes a lot of sense because EDS has been under a lot of pressure to improve performance while at the same time being constrained by their existing business, the industry, and culture. Acquisitions have the potential to disrupt all three factors.

Secondly, for HP this is a good move because of EDS’ outsourcing business providing a growth opportunity not just for services but also hardware, HP’s core business. These businesses require extreme scale in order for the economics to work and as a consequence the server hardware market is contracting and expanding at the same time. With companies increasingly moving to hosted data centers and on-demand applications, not to mention hosted cloud initiatives, there are fewer but bigger hardware purchasers.

Lastly, HP definitely needs to get in the game with a cloud initiative and while EDS doesn’t explicitly have that asset today it is not a stretch to give them the benefit of the doubt for their ability to get in this game given the right prioritization.

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