'Too early to tell'

By Leon Engelbrecht for HP

Johannesburg, 30 May 2008

Hewlett-Packard (HP) SA says it is premature to say what the impact of its $13.9 billion acquisition of Electronic Data Systems (EDS) will mean for its operations in SA and for its customers.

According to HP, its global revenue from services will more than double as a result of the deal. The company intends to establish a new business group, to be branded "EDS - an HP company", to be located at EDS's existing executive offices, in Texas.

Research house IDC says services makes up about $4 billion or 40% of the SA IT market.

HP SA services director Hansjoerg Walz says both companies are, for the moment, continuing business as usual. He says the deal is currently going through regulatory approval processes in the US and European Union. "That's a process that will take six months or so, and only after that will we know how the integration will go... what it means in terms of organisational alignment."

Walz says he expects the merger to be similar to the 2002 Compaq-HP marriage.

"From an overall strategic perspective it makes a lot of sense for both of us," says Walz. "It will probably change the landscape in the IT services market... we will be the second largest IT services provider globally and in the top five in SA."

Neither are currently in the SA top five and Walz says the teaming up of EDS and HP locally should offer existing customers better value and should also attract new business.

"I would hope it will help us grow the business, by offering a broader services base for customers. There are overlaps in our portfolios, such as outsourcing, but in other areas we compliment well. For example, EDS is very strong in business process outsourcing and has some advantages in the application space. We are very strong in IT consulting and technology support," says Walz.

"It is a combination that will give a broader portfolio for our customers."

IDC IT services senior research analyst Pieter Kok says the tie-up is "strategically a good move for HP as they have been struggling in the local market".

He says EDS has been strong and HP will benefit from its skills and client base and should see a "significant impact on its revenue going forward."

Kok, however, disagrees with Walz that the deal will propel the new entity into the local "top five". He expects it to push them into the "top 10", most likely in eighth or ninth place, only next year or the year there after. The main services houses currently are Didata, BCX and GijimaAST. EDS as at number 16 and HP is 18th, says Kok, citing IDC research.