HP EDS union set to shake up IT services market

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HP EDS union set to shake up IT services market

HP’s US$13.9 billion acquisition of EDS will beef up its competitive muscle, creating an IT services company to rival market leader IBM, according to analyst firm Gartner.

Gartner vice president and analyst, Rolf Jester, said the acquisition would give HP a major injection of professional services, including outsourcing, consulting and services integration.

“It shakes up the playing field quite substantially in that it would make the combined entity quite a significant number two in the Australian services marketplace,” he said.

“If you look at IBM, today they are predominately a services business whereas HP isn’t -- they bring products and services in a closely-coupled link together.”

“But this merger would change the nature of HP’s business from being a pure technology solutions company, to a company that now has a well-rounded portfolio of services to match.”

It will also give HP a much needed revenue boost in the services market, where its services business generated only 16 percent of its total 2007 revenue of US$104.3 billion. IBM on the other hand, makes more than half of its annual revenue from services.

According to Gartner’s 2007 worldwide IT services market figures, the HP and EDS marriage will boost the combined entity’s revenue to US$39 billion.

Although still some way behind IBM’s US$54 billion 2007 revenue figure, the new balance will catapult HP into the number two spot, ahead of Accenture on US$20 billion revenue and Fujitsu on US$18.5 billion for 2007.

The acquisition will also give HP a global IT services market share of 5.3 percent based on 2007 figures, while IBM will maintain its lead on 7.2 percent.

On the Australian front, HP will increase its 2007 revenue figure of AU$580 million to AU$1.7 billion once the EDS acquisition is complete. HP’s Australian market share will jump from 3.4 percent to 10.1 percent, closely behind IBM’s 13.2 percent.

The EDS acquisition could also yield more Federal Government supply contracts for HP.

IBM is currently the Federal Government's largest IT supplier having secured AU$1.3 billion worth of contracts between 2004 and 2007. However, during that same period EDS and HP notched up a combined AU$1.02 billion in deals.

IBM declined to comment on HP's acquisition plans.
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