User 49180

Hurd Plans to Herd EDS into HP

HPQ 's Gross Margin was in the 24.5% range last year. The 1/3 of revenues from PC & related returned commodity level margins. EDS had a Gross Margin of about 13.7% last year. Even with substantial EDS/HPQ cost savings, HPQ's combined margin including EDS appears headed down from the 25% level. Given the slowdown in US consumer spending expected by the Fed it seems logical to assume that the PC segment gross margins will be headed down as well as all the PC makers compete for fewer buyers.

HPQ may be moving in the right direction - but margin compression may lead to HPQ stock p/e compression. And it would seem achieving the 42%+ Gross Margin that IBM achieved last year is not on the horizon.

Enterprise Software: More Room For Downside Surprises

This article seems to be a series of vague conclusions.Is there a point?

HP’s Acquisition of EDS Makes Sense

The acquisition of EDS may prove valuable to HPQ in the long run but could lead to p/e compression and a lower than otherwise HPQ stock price in the near term. HPQ's Gross margin was just under 25% last year compared to just under 42.5% for IBM which has shed lower margin business segments like PC's over the last several years. EDS' gross margin was just under 14% last year and adding another relatively low margin book of business to HPQ's big PC business should keep HPQ Gross Margin sub 25%.

In addition, many big EDS customers use IBM hardware and may want to transition to IBM's new Power6 equipment. The acquisition may provide marketing opportunities for IBM to characterize HPQ/EDS as a "middleman".

IBM Looks Solid

Good sumary -- the gross Margin yoy Q1 growth of 1.3% was very good news. Also, the IBM CFO pointed out that IBM is calendar back loaded for cash flow and that it was the first Q1 in 5 years that was cash flow positive without considering one-time items like pension cost savings.