HP’s Acquisition of EDS:Who Benefits From Consolidation?

Today’s blog comes from Mark Mayo, Partner, TPI.

We all knew consolidation would happen. Who would be next, when it would happen and the real impact it would have on the industry were the unknowns. Well, now we know: HP has acquired EDS; and, now everyone is asking, “So what? What does it really mean?”

Mark_mayo

Mark Hurd, CEO and Chairman of the Board, HP, is a man on a mission to diversify HP’s business portfolio and find better ways to provide value to enterprise customers. Clients want solutions – not just products – which make them more competitive, more cost effective. HP’s acquisition of EDS is recognition of this fact.

 

Ron Rittenmeyer, President and CEO, EDS, has shown himself to be intensely focused on enhancing the company’s competitiveness, service quality, growth and profitability. The integration of HP’s outsourcing business with EDS is a bold move to dramatically accelerate the timetable and scope of this agenda.

This clearly is a very friendly acquisition, with a winning result for both companies.

The combined company will be substantially better positioned to compete globally and in multiple domains compared to either EDS or HP individually. Current HP outsourcing clients will benefit from the discipline and scale leveraged from the EDS operating model. EDS gets access to HP’s financing, which should help them compete on transactions that have significant asset components, as well as an expanded client base. One major concern that surfaced early was the fear that EDS would be locked into primarily bidding HP technology, products and solutions.  HP and EDS appear to be addressing this potential pitfall of vendor independence by stressing their support of third-party solutions and continuing the Agility Alliance.

Complete integration of the two companies will be a multi-year task; nevertheless, minimizing client service disruption and maximizing sales effectiveness during the next 12 to 18 months will be critical.

The companies’ collective services businesses had annual revenues of more than US$38 billion at the end of each company’s 2007 fiscal year – Number 2 to IBM’s $57B. Successful integration will create a stronger competitor, especially for IBM, but it is not a major shakeup of the industry.

Have HP and EDS whet the appetite of the industry for more consolidation? They have definitely caused us all to look west when we thought we should be looking east . . .