HP + EDS story

Hewlett-Packard Co. has agreed to buy Electronic Data Systems Corp. for about $12.6 billion to build a technology-services company that could challenge IBM. The sale is expected to close in the second half of this year and more than double HP's revenue from services, which was $16.6 billion in 2007. EDS had $22.13 billion in revenue last year. The combined services business would have 210,000 employees -- although some analysts expect HP would trim jobs -- and operations in more than 80 countries. HP said the business would be based at EDS' headquarters in Plano, Texas, and led by EDS chairman and Chief Executive Ronald A. Rittenmeyer.

1. While Hewlett-Packard has over time built up its own outsourcing practice, this clearly is a move to challenge IBM in the services area.

2. Together HP and EDS would have roughly $39.4 billion in services revenue, compared with IBM's $54.1 billion last year.

3. HP gains a very strong No. 2 position in total services market share and professional services market share behind IBM.

4. If EDS were to remain independent it would have a tough time holding on to its number 2 slot in IT services market.

5. EDS brings to HP a strong base in infrastructure outsourcing. But neither HP nor EDS is strong in high-end consulting, which is a strong suit for IBM.... So unless HP has some synergies where they can dramatically impact earnings growth of EDS there is still some speculation on why would they want to buy it.
6. The underlying motive is to have a Bigger Services and IT Outsourcing company using common and pooled client base . Use EDS expertise in services (hence the EDS based leadership) ,add HP services , and cross sell based on HP hardware.

7. EDS brings the consulting skills while HP provides the hardware. Consulting services are much more profitable than hardware. Like IBM, HP/EDS can now provide end-to-end solutions. They can essentially give away the hardware at cost and make money on the consulting and servicing.