Just saw the news that Hewlett Packard is in talks to acquire EDS. The announcement is here.
This may be Mark Hurd’s biggest and risky bet to carve out a bigger space in the IT services market. As anyone can see, Mark will face 2 key challenges with this acquisition. Unlike the earlier acquisitions, this one is a big move and hence there is the imminent integration challenge between these 2 companies with different cultures. Given that EDS has a higher market share and also been in the IT services business longer than HP, they are unlikely to submit to the HP model easily. Till date HP has shown distinct conservatism in the services market, by just managing the infrastructure around its own product platforms where as EDS has been more of a risk taker given its background and history. It also has done more higher-end work like complex application design. So, who would call the shots — HP as the acquirer or as EDS with a big client list and a track record of delivering higher value services? We just have to see how this unfolds.
Second, Mark has to transition the combined entity to the right cost structure by shifting significant resources to a low cost countries like India. At least in India both EDS and HP have operations and their merger may not create much problems.
I believe the only way to amount the challenge to IBM would be to set this up as an independent business operation and go after the high margin business. It is only then that the acquisition makes sense. Whether IBM gets affected or not, I can see this impacting Accenture, Cap Gemini and a few others feeling the pressure.
Tags: mergers and acquisitions, IT services, outsourcing, HP, EDS, Mark Hurd
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