Closing of EDS deal brings HP closer to rivals

Hewlett-Packard closed on its US$13.9 billion acquisition of Electronic Data Systems Tuesday, marking the computer maker's largest deal since its purchase of Compaq Computer in 2002.

With EDS, HP adds an organization has worked very closely with some of its staunchest rivals, notably Sun Microsystems and Dell. Indeed, EDS formalized its partnership strategy through its Agility Alliance, which joined some often fierce competitors like Microsoft, SAP AG and Oracle, 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 1000 clients. The deal instantly doubles HP annual services revenue to US$38 billion.

Analysts note that the combination also joins companies with two distinct cultures, Silicon Valley pioneer HP and Texas-based, Ross Perot founded EDS. John Madden, a research director in Ovum's Boston office, said cultural issues could pose integration issues for HP. In addition, 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 financial analyst briefing on September 15.

Analysts do expect the combination to lead to job cuts at both firms. One EDS employee in the UK, who asked not to be named, said voluntary buy-outs were offered last month but employees, generally, are waiting for more details.

Many 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 into HP CIO Randy Mott, who has overseen HP's consolidation of 85 data center to six. Mott also brought cultural changes to HP by, for example, cutting back on telecommuting options.

Many EDS executives are remaining in their roles, but Dane Anderson, an analyst at Gartner, said "most surprising" to him in the management changes was the absence of Charles Feld, EDS senior executive vice president of application services, from the combined firm. Feld, a former CIO of Delta Air Lines, and vice president and CIO of Frito-Lay, joined EDS after it acquired his consulting firm, The Feld Group, for US$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 EDS-HP 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.