HP’s announcement of its US$13.9 billion acquisition of IT services firm Electronic Data Systems Corp. will help move the company out of IBM Corp.’s shadow, according to one industry analyst. But not before EDS’ Canadian operations face some potential reshuffling.
“If I was in the technology group for EDS, I think I’d be a little worried, considering there are a lot of duplication of tasks and clients,” Sebastien Ruest, vice president of services research at Toronto-based IDC Canada, said.
Much of HP’s focus in the last few years, he added, has been in creating its technology solutions for its business outcome mantra and perfecting the infrastructure services layer it delivers.
The potential for job cuts was also echoed by EDS chief executive Ron Rittenmeyer, who said that while the overlap was not too extensive, both company’s have some customers in the same space.
“In terms of job cuts, we are continuing to streamline our workforce at EDS and we’ve been doing this for some time” he said in a press conference Tuesday. “Obviously there’s going to be some changes, we’ve already been doing that this year, so I don’t think it changes our plans in this area. We’re going to continue to look at automation and quality. Automation makes quality and service better for the client and its part of the evolution.”
Interestingly, some of those working in HP’s services unit may also be feeling a little “worried” as the Palo Alto, Calif.-based tech giant plans to move some of its workforce into the future EDS business group.
“HP is actually moving some of its service unit into EDS, so it’s an interesting twist where we’re being acquired, but some of their employees are going to be impacted as well,” Bob Brand, director of corporate PR for Plano, Tx.-based EDS, said. But according to Ruest, the people that might be the most “worried” about the deal could be those working for IBM. Ruest said from a post-deal revenue perspective in Canada, HP and EDS would have a combined $1.4 billion in IT services revenues, compared to IBM’s $2.7 billion in IT services revenues.
“If I was IBM, I’d be a little scared because the combination of HP and EDS worldwide would probably have an annual revenue of $130 billion, and nearly $40 billion of that in IT services,” he said. “HP has been in the shadow of IBM’s global services for so long. EDS has recognized delivery models and it has a fairly strong agility alliance that probably rivals IBM in some cases.” Ruest also said HP doesn’t have an application services portfolio or a business process outsourcing (BPO) practice, both of which EDS Canada is fairly strong in.
“EDS Canada also just recently renewed quite a few key executives to strengthen and put a focus on the application services world, which again, HP doesn’t have, so from that perspective, it’s going to be beneficial to HP,” he said. Ruest singled out EDS Canada’s Mark Langlois, vice-president of application and consulting services, as one of the leading players in the applications services market.
From EDS’ perspective, Brand agreed that the deal would be a “win-win” for both companies and their very complimentary portfolios. HP is currently the fifth largest company in the IT services sector, he said, but combined with EDS, the company will be a very close number two to IBM.
“We’ve been going after [IBM] for years ourselves,” Brand said. “We’re now going to be the number two player. When you combine our services revenue, it’s about $40 billion and that’s pretty close to what IBM is now. We were both always a very strong global competitor before, but now combined we are an even stronger global competitor.”
HP Canada spokesperson Mehboob Jaffer said the fact that the there’s not huge overlay from a customer perspective means HP will have a tremendous opportunity to grow its business and utilize EDS’ strengths as a result of the deal.
“We’ll be able to align our costs in the services business to EDS’ capabilities, and they’ll be able to benefit from HP’s vast portfolio of technology and R&D,” Jaffer, head of corporate PR and executive communications for HP Canada, said. “We’re in a tough market generically and the services business is a very strong piece of how we see ourselves growing in the future. This is an opportunity for us to strengthen that area and really go into the marketplace at the number one or number two level in each of the areas that HP and EDS operate in.”
The HP and EDS deal is set to close in the second half of this year. EDS will retain its brand and become EDS: An HP company.