Analysis: Why Hewlett-Packard wants EDS

Computerworld - Mark Hurd, CEO of Hewlett-Packard Co., likes automation, not people. Offshore labor will reduce costs, but automating things "eliminates costs," he has said.

Hurd wants "lights-out data centers." He has not championed the need for developing a massive, people-intensive services organization -- which is exactly what he will get if HP acquires Electronic Data Systems Corp. Both companies confirmed Monday they are in "advanced" talks about a merger.

Plano, Texas-based EDS will add some 139,000 employees to HP's 172,000-person workforce, but only about $22.1 billion in revenue, which is what it finished 2007 with. HP ended last year with $104 billion in revenue.

So where is the benefit to HP and EDS customers? And what are the risks? The last time HP decided to merge with a large Texas-based company it didn't go so well. The 2002 Compaq merger engendered a contentious battle and a difficult integration, and was a major reason why Hurd's predecessor, Carly Fiorina, resigned in 2005.

Are they Blue? (No.)

EDS is focused on infrastructure services — running data centers, help desks and networks, which gives Hurd an opportunity to replace people in a data centers with HP hardware and technology. And EDS would give HP access to a lot of data centers.

And then there's that automation question. "We have to automate more things," Hurd said at a Morgan Stanley conference in March 2007, in response to a question (download PDF) about IBM's services offerings. "When you take on a data center from a customer, a customer gave it to you for a reason. Typically, they gave it to you because it's screwed up and they don't know how to fix it. So if you don't have the tools right, all you've done is inherited a screwed-up, underleveraged capability. So you have to transform it or else you're not going to make any money either."

IBM, like EDS, provides infrastructure services. But it is also big on management consulting, and that's where they part ways. EDS tried to become more IBM-like when it acquired management consulting firm A.T. Kearney in 1995, but the acquisition never really added to EDS's bottom line, and A.T. Kearney was returned to private ownership in 2006.

A match made in ...?