chowderhead

HP Snaps Up EDS for a Bargain

The price IBM paid for PwC was a 'deal'. EDS is not when its approximately 50% of revenue and gross margins that are poor.

First the quality of the buy. We have to remember that EDS is not a tier-1 consulting company. They are frequently left out of many of the Global 1000's RFPs for strategic transformation projects. That said, Deliotte or Accenture would have been a better buy if HP could afford it and had a strong services strategy.

Next, cost controls. I am sure you can 'cut' heads and costs but I am also sure that Ron Rittenmeyer has been slashing for some years to meet his financial goals and thus stock price. So, I would say that cuts will be done, but limited to pruning and effectiveness unless EDS dips into short term thinking and slashes away their future.

Lastly, I question the deal's longevity to HP's bottom line. EDS doesn't have the strength and breadth to compete with IBM and the tier-1 consulting companies. EDS merged with an even poorer HP Services team move the needle anywhere other than increase its size.

You can pretty the monkey and balance sheets up for the next 2-3 yrs through cuts and usage of HP vs. Sun hardware, but it remains to be seen how much of a consulting force this marrige will make in the market.