IDC: HP and EDS - a marriage of convenience?

IDC believes this deal, which is expected to close in the second half of 2008, will effectively see HP's worldwide services revenue double. According to IDC's Australian IT Services Tracker, EDS and HP's combined revenue total will exceed $1 billion.

In the Australian outsourcing market (a subset of IT services in which EDS is one of the major players) for the 2007 period, the combined EDS/HP revenue amounted to a market share exceeding 10 percent, placing it at number two.

The merger will propel HP to the number two position across the high growth services markets and it will give the company strength in the infrastructure services market for both support and outsourcing service delivery models (considering HP has a large IT support services base in Australia). \

Other areas of benefits will be within the systems integration services market and a boost in capability within the applications integration and legacy modernisation and management domain.

HP has a strong presence in the Communications and Manufacturing verticals whereas EDS has a very strong footprint in the Banking/Finance and Government.

The Banking/Finance, Government and Communications verticals almost account for approximately 69 percent of the spend on outsourcing in Australia. This merger would help the HP/EDS entity expand its presence across the most lucrative verticals, claimed IDC.

The analyst group believes there are a number of key points to consider on the impact such a merger would have on the local market.

According to IDC, a merger of this scale and complexity will of course come with integration challenges.

The important consideration for HP/ EDS would be to speed up the process, to ensure customers do not become casualties of some of the challenges and integration issues.

From an Australian perspective, there is a significant difference in the way end customers perceive the cultures of the two organisations.

Within the outsourcing space, HP has carried a better mindshare in being more agile, flexible with a great culture compared to EDS. Redefining the value proposition with the HP brand would require significant investments and a cultural shift both internally and externally, stated IDC.

The analyst group belives, though HP has become the second biggest IT services provider, it is important to note that there are gaps that require attention.

For some of the high margin services like Offshore Applications Management, Remote Infrastructure Management Outsourcing and BPO, EDS's value proposition is still weak and the company has not managed to compete against the likes of IBM and the Indian offshore pure plays.

The case is the same for HP as well and it has struggled to win business within these markets in Australia. The merger will not immediately address this lack of capability in this market for HP and a fresh go-to-market plan needs to be looked into for these services.

Historically there could be some hindrances - EDS has not managed to leverage its acquisition of Mphasis in the Australian market to a good extent. EDS may not be strong in the mid-market in Australia, but the HP brand does have an excellent mindshare in terms of support services and products specifically targeting this market.

Productising EDS services coupled with the HP product portfolio will help address opportunities successfully in this market.

According to IDC, from a partnership perspective there are some messaging, capabilities and integration issues to address, particularly as the merger is likely to create some uncertainties for EDS's Agility Alliance Partners, especially for Sun Microsystems and Dell.

In spite of some of the challenges highlighted, the merged entity will be a powerful force to reckon with especially for IBM which has enjoyed the convenience of not competing with HP on large outsourcing and IT services deals over the last few years.

The HP solution portfolio, great client oriented culture and EDS's ability to manage complexity and transformation is likely to emerge as a powerful market combination, stated IDC.

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