HP and EDS: High risk say analysts

Satyen Patel, executive vice chairman of Bangalore-based outsourcing firm Cambridge Solutions, told Computerworld UK that HP's capture of EDS was necessary to compete on scale with IBM, which had been "incredibly aggressive" in its pursuit of outsourcing deals recently.

Phil Morris, managing director of EquaTerra Europe, questioned whether this is the right strategic move for HP, or whether it should have chased an Indian player such as Tata (TCS), Wipro or Infosys.

"At first glance the purchase of EDS by HP adds relatively few new capabilities to the mix, although EDS is a services brand not a hardware brand, in reality there is more overlap than not -- so a market share move."

Morris also said EDS looks expensive. "The share price has been falling steadily for months and its only upward pressure is the purchase talk from HP, not its performance per se." EDS's share price rose 28 percent on the news.

Morris said he believes HP is "spending too much" for a company that "does not take them forward far enough to warrant the purchase price".

"Whilst there are clear pluses, on balance I do not believe EDS is the right target for HP, and culturally one can only stand back and watch."

Speaking at the Intellect event as the deal was being finalized, EDS UK country manager Sean Finnan said the local technology economy remains robust. "The amount of prospects is as strong as it has been for a long time," he said.

Finnan also predicted more focusing of IT services as a result of the shake-up in the IT services market.

"We'll see more specialization," he said. "For example, the need for specialist financial services skills, which is already very high, will be amplified."