Closing of EDS deal brings HP closer to rivals

EDS Agility Alliance includes partnerships with Sun and Dell, key competitors to HP

Hewlett-Packard Co. today closed its $13.9 billion acquisition of Electronic Data Systems Corp., completing its largest deal since it purchased Compaq Computer in 2002.

With Plano, Texas-based EDS, HP adds an organization that has worked very closely with some of its staunchest rivals, notably Sun Microsystems Inc. and Dell Inc. Indeed, EDS's formal partnership effort, which it called the Agility Alliance, united some often fierce competitors, including Microsoft Corp., SAP AG and Oracle Corp., in collaborative development centers. EDS, overall, fostered a technology-neutral approach to meet the needs of its customers. 

The EDS acquisition brings 137,000 new employees to HP, along with services contracts with a slew of Fortune 1,000 clients. The deal instantly doubles HP's annual services revenue to $38 billion.

Analysts note that the combination also joins companies with two distinct cultures: Silicon Valley pioneer HP and Texas-based EDS, which was founded by Ross Perot. John Madden, an analyst in Ovum Ltd.'s Boston office, said cultural differences could pose integration challenges for HP. In addition, even though it's too early to know whether HP will try to influence EDS technology decisions, the issue "is something to watch," he said.

HP plans to provide details of its plans for EDS at a Sept. 15 briefing for financial analysts.

Analysts do expect the merger to result in job cuts at both companies. One EDS employee in the U.K., who asked not to be named, said voluntary buyouts were offered last month but employees, generally, are waiting for more details.

Many of EDS's executives will remain in their current roles, though HP's officials will have oversight on some key operations. For instance, EDS's IT operation now reports to HP CIO Randy Mott, who has overseen the consolidation of HP's data centers from 85 facilities to six. Mott also brought cultural changes to HP by, for example, cutting back on telecommuting options.

Dane Anderson, an analyst at Gartner Inc., said "most surprising" to him in the management changes was the absence of Charles Feld, EDS's senior executive vice president of application services, from the combined firm. Feld, a former CIO at Delta Air Lines and Frito-Lay Inc., joined EDS after it acquired his consulting firm, The Feld Group, for $89 million in 2004.

In his EDS biography, Feld is described as the architect of the company's effort to modernize and standardize its architecture. An HP spokeswoman said Feld is retiring. Anderson said that Feld laid the path for the Agility Alliance.

Anderson expects that the combined HP-EDS will continue to increase its investment in application services, or "up the stack" to provide more sophisticated business services.

EDS clients need to find out where they stand with HP post-acquisition, said Anderson. If their business is low margin or worse, the client needs to ask whether they are "in jeopardy of being minimized in the broader scheme of things," he said.

Copyright © 2008 IDG Communications, Inc.

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