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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.