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Category: EDS
September 23rd, 2009
HP gives EDS new moniker, HP Enterprise Services
Hewlett-Packard has given EDS a new name a year after acquiring the company. The new moniker: HP Enterprise Services.
The acquisition has delivered handsome returns to HP as the key hardware businesses were whacked by the recession. HP said the name change comes following a year of integration moves. In a nutshell, HP is signaling with the name change that the EDS integration is complete.
HP’s Technology Solutions Group business will be renamed HP Enterprise Business. That group will include servers, storage, software, networking and technology services.
With all the naming conventions clear, you can expect that HP will go after IBM’s services unit with more fervor.
March 13th, 2009
HP imposes more salary cuts for EDS employees
HP said late Friday afternoon that it was temporarily cutting base salaries for EDS employees by an additional 10 percent beyond what was announced last month. On February 18, the company said it was cutting base pay across the board and making adjustments to benefit plans as part of a cost-cutting measure.
Below is the full text of today’s memo to employees, obtained by ZDNet:
From: EDS Worldwide Marketing - Communications
Sent: Friday, March 13, 2009 4:05 PM
Subject: Additional, Temporary Compensation Adjustments for EDS U.S. & Puerto Rico EmployeesTo EDS Business Unit Employees in the United States and Puerto Rico:
Since becoming part of HP last year, we have accomplished a great deal and should be proud of what we have delivered together. Our service excellence remains high, and we have closed a number of significant deals. Our execution during the transition phase has been outstanding. As we move from the integration phase into the transformation phase, we know from experience with our own client projects this will be the most difficult part of our journey.
Our goal is to transform the business into a future state, which will grow faster than the market and enable us to take share from our competitors. We will then be able to deliver above-industry benchmark returns to our shareholders and price deals that win more business while providing flexibility to invest in innovation, delivering greater value to our clients.
The gap between where we are today and accomplishing our goals is widened by the current economic climate. As a result, we need to take temporary actions to get us through this difficult period. Our customers expect EDS to be a financially strong partner and, as employees, we expect a healthy company as well. With this in mind, we announced specific actions on March 9 to reduce our cost structure and enable the business to improve operating profit and grow as we enter fiscal year 2010.
Unfortunately, we need to take additional action. Specifically, we have decided to make a temporary, additional reduction in base salary affecting EDS business unit employees in the United States and Puerto Rico.
Base salaries for all United States and Puerto Rico employees in the EDS business unit will be temporarily reduced beyond those reductions previously announced by HP on February 18, as follows:
- An additional, temporary reduction of 10 percent in base salary effective for April 2009
- Base salary will not be reduced for employees below an annualized, full-time equivalent income of $40,000 by this additional, temporary action
In May 2009, base salary for United States and Puerto Rico employees in the EDS business unit will be reinstated to the levels of base salary effective on March 16. This includes reductions previously outlined in HP’s February 18 announcement. While we have no plans for an additional base salary reduction, we will continue to closely monitor the performance of our business and make further adjustments as required in the coming months.
We recognize these are tough actions, and you can be assured we made this decision after much thought and assessment. We ask for your support and understanding as we work through these very difficult times. We are confident we will strengthen our position in a consolidating market. We will be one of the industry’s strongest and safest pairs of hands, trusted by our clients to solve their technology challenges.
Sincerely,
The EDS Senior Leadership Team
December 15th, 2008
Enterprise software: A tour of the year ahead
Despite the recession 2009 is going to be a critical year for all of those key vendors that best describe their turf in acronyms–CRM, ERP, BPO and perhaps a relatively new one VRM.
Those acronyms, which stand for customer relationship management, enterprise resource planning, business process outsourcing and vendor relationship management, respectively, are going to be more than just a jargon in the year ahead. They are going to be critical to your business as you either ponder upgrades, stand pat or try to figure out how they can help you revamp your business.
As I go around the horn among our ZDNet bloggers, there are a few thoughts that stick out.
November 25th, 2008
HP's Hurd: IT downturn different than 2001; Ink matters
Hewlett-Packard’s fiscal fourth quarter didn’t offer up many surprises given the company preannounced the results along with its outlook. But there were more than a few notable nuggets that indicate where tech demand is heading.
Here’s a look at the top five takeaways from HP’s earnings report (Techmeme, SeekingAlpha transcript):
1. This downturn is different than what the technology industry faced in 2001. HP CEO Mark Hurd noted some key differences between this economic downturn and the dot-com bust. Analysts were watching HP’s commentary closely since the company can tell you how business is with November mostly in the bag.
Hurd said on the company’s conference call that the economy is far from normal, but customers are thinking hard about where they spend their money. November sounds stable, but it’s not a lot better than October. Hurd’s money quote:
“We have a different environment, than we had, say, back in 2001. We don’t have the infrastructure build out that we had at that timeframe, and I think people are more cognizant that at a TCO (total cost of ownership) level, keeping stuff too long is not a great thing either from a total cost perspective.”
2. Credit is thawing. Hurd noted that mid-market customers are able to get funding for IT projects. That wasn’t the case in October. That said, Hurd cautioned analysts not to get carried away. However, the midmarket is critical to the technology industry so any positive news is welcome.
3. Ink matters–a lot. What was really telling about HP’s conference call was the amount of time spent on printer supplies. Why? Ink is recurring revenue. Ink sales–along with services contracts that provide ongoing revenue–act as a buffer in a downturn. HP gets a third of its revenue from recurring revenue sources. HP did raise its ink prices in October to fuel 9 percent growth in its supplies business.
4. The benefits of EDS will become clear in the downturn. HP said that its integration of EDS is on track and more importantly services are countercyclical to a slowing economy. Hurd said:
“I think in this environment services in many cases is countercyclical, so what you have is people trying to take cost that could be capital and outsourcing that to somebody else so that they actually take the cost for them and in some cases variablize the cost where it makes sense, so that becomes an attractive value proposition for our customers.”
5. Notebook sales are strong. Notebook revenue was up 21 percent, an impressive performance given the environment.
September 15th, 2008
HP vs. IBM: The looming IT services war
HP and IBM want your services business and the jockeying for position has already begun.
Later today, HP holds its analyst meeting where CEO Mark Hurd will provide a new financial outlook including the EDS purchase, which just closed, and outline the company’s enterprise plan. In a nutshell, it’s a blueprint to how HP is going to try and poach some IBM mojo.
So far, analysts are upbeat about HP’s prospects. One analyst–Jeff Embersits of Shareholder Value Management–is so upbeat that he recommends a Hurd portfolio. This portfolio dictates that you buy HP shares and short competitors Dell, Kodak and Lexmark since rivals will get “run over by the Hurd.” There’s one problem: Embersits left off IBM.
Let’s not get confused here. With EDS in the HP fold there’s only really one competitor Hurd has in mind: IBM. Sure, HP’s analyst meeting will feature a lot of talk about synergies and future cost cutting but strategically the purchase of EDS changes everything. HP vs. Dell is an interesting warm up act, but that battle has been won. Big Blue is the big target.
Louis R. Miscioscia, an analyst at Cowen and one of the best in the business, explains:
Many analysts are unwilling, or prefer not to look at the strategic aspects to this deal, which we believe are material and are only a few years out. Hardware is becoming more commoditized over time, thus services is a logical offset to this for a large IT company. Software/hardware outsourcing provides a stable revenue stream. Offshore software outsourcing still garners very attractive operating margins in the 17%-28% range. Finally, if the end goal is to approach the margin levels of IBM at 10% and Accenture 13%, with EDS and HP in the 2%-5% range, there would be room for improvement for many years to come.
The plan for Hurd: Grab those lovely profit margins that Accenture and IBM enjoy. Here’s the breakdown of the HP and EDS businesses via Miscioscia: 
With HP’s outlook it appears that a campaign is about to begin. IBM in its pitches to me floats the concept of “the future of services.” The message: IBM is on the leading curve of IT services and HP isn’t. IBM’s strike is preemptive as HP’s services business will get a lot more attention beginning today. Bill Shope an analyst at Credit Suisse is referring to HP’s analyst meeting as the big show. If HP can integrate EDS well–I see no reason to believe Hurd can’t–then the company can start making life difficult for IBM.
Big Blue, however, won’t go quietly and there are plenty of question marks about HP’s services model. The biggest question is whether HP’s Agility Alliance. The Agility Alliance was cooked up by EDS to compete with IBM. Partners include Microsoft, Oracle, SAP, Sun, EMC and Xerox. EDS recommends its partners’ hardware and software in return for a services recommendation. Shope asks a valid question: Will this alliance hold given that EMC, Xerox and Sun compete with HP?
Rest assured IBM will raise that question–repeatedly.
The other strategic shift for IBM is painting HP into the hardware maintenance and offshore outsourcing corner while elevating its profile to be more analytical. Case in point: IBM on Monday announced “a blended human capital management services and software package” that integrates the purchase of business intelligence software company Cognos with services. The general idea: Provide operational dashboards to everyone with services built around improving metrics. This dashboard meets services theme also popped up when talking to Big Blue about its green computing plans.
Bottom line: The IBM vs. HP on IT services is really a political campaign that’s just kicking off. And unlike Obama vs. McCain there is no hard stop. The campaign for your IT services budget will continue for years to come. Sam Diaz will report later on HP’s analyst meeting and I’ll be following up with IBM’s approach.
August 26th, 2008
Magna Charta: Welcome Back, Ross Perot
So, EDS is gone (again), subsumed by HP. But, lo and behold, H. Ross Perot is back, just in time for the presidential elections. Now, you can view his slides about the dangers of the federal deficit and debt online, any time you want. Or, hear him posit that the only silver lining in the state of the nation’s education is …. “there’s no place to go but up.’’
If you want to hear the facts from everyone’s favorite Dallas billionaire and erstwhile presidential candidate on energy, education, health care and other major public issues, all you have to do now is go to PerotCharts.
A typical exigesis is his set of “challenge charts” on “U.S. Primary Energy Consumption By Source and Sector 2007” and there is also of course is classic case against U.S. government spending that he used to put on handheld slides back in 1992, when he ran for the White House. The federal deficit that was $4 trillion when he made it an issue in his race for the presidency is now $9.4 trillion.
You can hear him on the site rail against the $1 billion a day of debt that is building up, when you go to his “instrument panel” for citizen knowledge and action on the “serious economic issues” facing either incoming president, Barack Obama or John McCain, and the country. They are not named, but the purpose of the site is clear: Perot wants to influence public thinking as the Nov. 4 election approaches. He hopes people are still listening.
“ It’s one thing to promise me free candy forever, but where are you going to get it?,’’ he told radio talk show hostess, Rita Cosby, on WOR in New York.
Unlike at least one of the aforementioned candidates, his natural reaction is to use computer services, now available on the Web, to get his points across.
Perot, of course, is as responsible as any single person in this country for developing the idea that software or hardware could be supplied as a service to corporations. He left IBM in 1962 and founded Electronic Data Systems Corp., which as recently as 1993 thought it could overtake IBM as the world’s largest supplier of communications, computing and related consulting services to businesses around the world.
He sold EDS to General Motors for $2.6 billion in 1984, which would be the equivalent of about $5.5 billion today. So his successors did build value.
Perot, of course, went off and ended up competing with both IBM and EDS, with a new company, Perot Systems. Then, the man turned patriotic national hero partly due to his daring rescue of two EDS employees from an Iranian prison, ran for president as a third-party candidate. He roiled the election, taking 18.8% of the popular vote, although not a single electoral vote.
That time around, he actually led the race, which included incumbent George H.W. Bush and upstart Bill Clinton, in June. But he pulled out in July and irrevocably damaged his credibility by claiming Republican antagonists tried to disrupt his daughter’s wedding. He never proved the claim, publicly.
Now we’ll see whether his resumption of his chart-led detailing of the various economic and education crises facing this country have any effect on this presidential election. The problem, he says, is we don’t use “the engineering process” to solve complex problems in the economy or society. Not surprisingly, he says destroying the middle class is destroying the country – and thinks fellow Texas billionaire T. Boone Pickens’ wind-based energy policy deserves “serious consideration.” He lambasts Obama’s thinking on off-shore drilling.
So far, he hasn’t been seen squaring off with Brian Williams, Katie Couric, Charles Gibson, Anderson Cooper, Keith Olbermann, Greta van Susteren or Shepard Smith on any of the major news networks.
As he himself says, his daily life is never dull, but often strange. You can visit Perot and even send him a message if you want — if you can answer the single security question on the site. Remember, this is the man who had the plaque behind his desk: “Eagles don’t flock, you have to find them one at a time.’’
You can also listen to his interview with guest radio show hostess Rita Cosby on August 8 here.
Or go back and see how he used to present his ideas, in 1992:
August 26th, 2008
HP closes EDS purchase; Outlines services exec line-up
HP on Tuesday said it completed its $13.9 billion acquisition of EDS and announced its management team for its services unit.
With the EDS purchase, HP’s services business will have annual revenue of more than $38 billion and 210,000 employees. Now the integration begins. HP CEO Mark Hurd has given some hints about consolidating EDS data centers and has noted that his company has the infrastructure on hand to run his newly acquired prize.
On the software side there are already interconnections between EDS and HP. For instance, HP bought Opsware, which counts EDS as one of its largest customers.
HP reiterated in a statement that it will hold an analyst meeting Sept. 15 to detail how EDS will be integrated and provide updated financial guidance. It was clear on HP’s latest earnings call that its current quarter would be focused heavily on integrating EDS.
Here’s how things will come together for HP and EDS. Ron Rittenmeyer, CEO of EDS, will run the consolidated outsourcing services unit for HP. HP’s Technology Solutions Group–the company’s current services unit–will hand over its outsourcing services operations to EDS. HP’s TSG group will focus on servers, storage, software and technology services–including installation, maintenance and design of systems.
In a nutshell, EDS will specialize in outsourcing and relationship management. HP will handle the information systems under the hood.
Rittenmeyer’s team is comprised of both EDS and HP executives. Here are some of the moving executive parts for those of you keeping score at home. In a statement HP outlined the following execs reporting to Rittenmeyer:
Michael Coomer, 55, senior vice president, Asia Pacific & Japan, who held a similar role at EDS.
Joe Eazor, 46, senior vice president, Transformation. He was previously responsible at EDS for corporate strategy and business development.
Bobby Grisham, 54, senior vice president, Global Sales, who held a similar role at EDS.
Jeff Kelly, 52, senior vice president, Americas, who held a similar role at EDS.
Mike Koehler, 41, senior vice president, Infrastructure Technology Outsourcing (ITO) & Business Process Outsourcing (BPO), who held a similar role at EDS.
Andy Mattes, 47, senior vice president, Applications Services. He was previously senior vice president, HP Outsourcing Services.
Maureen McCaffrey, 45, vice president, Worldwide Marketing, who held a similar role at EDS.
Dennis Stolkey, 60, senior vice president, U.S. Public Sector, who held a similar role at EDS.
Bill Thomas, 48, senior vice president, Europe, Middle East & Africa, who held a similar role at EDS.
Among other appointments:
Craig Flower, 46, senior vice president of IT, reporting to Randy Mott, executive vice president and chief information officer at HP. Flower was previously HP’s senior vice president for eBusiness, customer and sales operations.
Tom Haubenstricker, 46, vice president, Finance, reporting to Cathie Lesjak, executive vice president and chief financial officer at HP. Haubenstricker was previously vice president and chief financial officer for EDS’ EMEA region.
Deborah Kerr, 36, vice president and chief technology officer, reporting to Shane Robison, executive vice president and chief strategy and technology officer at HP. Kerr was previously HP’s vice president and chief technology officer for services.
Mike Paolucci, 48, vice president, Human Resources, reporting to Marcela Perez de Alonso, executive vice president of Human Resources at HP. Paolucci was previously EDS’ vice president of Global Compensation and Benefits/HR Business Development.
Sylvia Steinheiser, 43, vice president, Legal, reporting to Mike Holston, executive vice president, general counsel and secretary at HP. Steinheiser was previously HP’s vice president, Legal, for the Americas.
July 31st, 2008
EDS shareholders approve HP deal; EDS shoots down layoff rumors
Updated throughout: EDS said Thursday that shareholders have approved the HP acquisition of the IT services company. Internally, rumors about impending layoffs at EDS are surfacing, but a company spokesman called the rumors “completely factually incorrect.”
According to a statement, 98.8 percent of EDS common stock was voted for the HP deal–that equates to 72.4 percent of the outstanding shares.
The HP purchase of EDS has been cleared by the European Commission and U.S. regulators. Pending clearance from other jurisdictions HP’s purchase of EDS should close in the third quarter. Meanwhile, EDS and HP have settled five shareholder lawsuits following the merger announcement.
Also see: HP’s Hurd: U.S. demand ’spotty’; Data center, app consolidation continues
While all of this news is good from the corporate perspective, EDS employees have been skittish. Rumors on Wednesday began percolating among EDS technology managers that the company is planning on laying off 20 percent of its workforce across all hubs in the Americas. As noted previously EDS said the rumors are incorrect. On Wednesday, EDS said wouldn’t comment on the rumors, but moved to squash them Thursday.
For now you can chalk this layoff chatter up to jitters over the impending HP merger.
May 20th, 2008
HP's second quarter solid; Focus remains on EDS
Hewlett-Packard delivered strong second quarter results Tuesday with revenue up 11 percent from a year ago, but analysts are likely to remain fixated on the EDS acquisition.
The company said second quarter net income was $2.1 billion, or 80 cents a share, on revenue of $28.3 billion, up 11 percent from a year ago. The results (statement) were in line with HP’s outlook following its acquisition of EDS (all resources). Excluding charges, HP’s earnings were $2.2 billion, or 87 cents a share. Wall Street was expecting earnings of 85 cents a share, according to Thomson Financial.
Also see: HP seals EDS deal; Services No. 2 behind IBM; Can Hurd run EDS better?
As for the outlook, HP said third quarter earnings will by 76 cents to 77 cents a share on revenue between $27.3 billion to $27.4 billion. Excluding charges, HP’s earnings will be 82 cents a share to 83 cents a share. Fiscal 2008 revenue will be $114.2 billion to $114.4 billion with earnings of $3.54 a share to $3.58 a share excluding charges. The outlook was also expected.
By the numbers for the second quarter:
- Revenue in the Americas was up 4 percent to $11.1 billion. Revenue in Europe, Middle East and Africa was up 16 percent to $11.9 billion. Revenue in Asia Pacific was up 16 percent to $5.2 billion.
- Research and development spending was $1.8 billion, up from $1.78 billion a year ago.
- Personal systems group revenue was up 16 percent to $10 billion. Unit shipments were up 21 percent. As expected, notebooks led the charge with revenue growth of 31 percent. Desktops were flat. Operating profit checked in at $544 million, up from $417 million a year ago.
- Printing revenue was up 6 percent to $7.6 billion with operating profit of $1.2 billion. Safe to say HP’s imaging and printing group remains the cash cow of the company. Supplies revenue was up 8 percent with commercial hardware up 6 percent from a year ago. Consumer hardware revenue, however, fell 3 percent.
- Enterprise storage and servers revenue was up 4 percent to $4.8 billion. Operating profit was $655 million, up from $452 million a year ago. ESS blade revenue was up 68 percent with storage up 14 percent.
- HP services had revenue growth of 12 percent to $4.6 billion. Operating profit was $508 million.
- Software revenue was $727 million, up from $568 million a year ago. Operating profit was $93 million.
- Cash and equivalents was $11.8 billion.
May 14th, 2008
EIC podcast: HP-EDS; Google; SaaS
On this week’s EIC squared podcast Dan and I talk about HP’s purchase of EDS, Google’s Friend Connect and the latest happenings in SaaS.
First up, HP’s big purchase of EDS has brought along a lot of Carly 2.0 analogies, but the argument doesn’t hold up too well (all stories). Why? When HP bought Compaq both companies were closer in size. EDS is a tuck-in–a large one–for the much larger HP today. Dan and I concluded that HP should be able to pull the deal off.
Dan riffed on Google Friend Connect and what it means for social networking. The takeaway: Google Friend Connect is an end-run around Facebook, but it’s not a zero sum game.
And finally, Dan talks about how he caught up with Larry Ellison and how the Oracle CEO doubts the growth potential of SaaS. We also touch on Workday’s big customer win and the big picture.
May 13th, 2008
EDS internal memo on the HP purchase
HP acquired EDS in a deal valued roughly at $12.8 billion. The move was outlined Tuesday morning amid a healthy dose of skepticism. Here’s a memo from EDS CEO Ron Rittenmeyer, who will now report to HP CEO Mark Hurd.
To the EDS Worldwide Team:
Today is a historic day for the future of all of us at EDS, our valued clients, our shareholders and the entire IT industry. EDS and HP have reached a definitive agreement for HP to purchase EDS.
This transaction would be the largest ever in the IT services market and would create a formidable global competitor. EDS would join the world’s largest technology company. HP enjoys a well-respected global brand and broad worldwide resources – along with a strong operational background.
When the transaction is completed, which is expected in the second half of the year, HP will establish a new business group and brand it EDS – an HP company.
Importantly, EDS would retain the brand all of you have worked so hard to build over the last 45 years. EDS headquarters will remain in Plano and I plan to continue as chairman, president and CEO of this new business group.
Obviously, this news means major changes for everyone involved. There are many questions to be answered and decisions to be made in the coming months. Ensuring a successful integration is our top priority.
What doesn’t change, however, is EDS’ commitment to provide excellent service for our clients. And, we will relentlessly pursue new business while continuing to build the best delivery process in our industry. The core values of EDS are shared by HP, which makes this even more of a winning combination.
In the weeks ahead, I promise to communicate often with you about milestones and decisions affecting our company and our careers. We will thoughtfully manage this entire transition process – just as EDS and HP have done for many other companies we have each acquired.
To begin the dialogue, I invite you to watch a broadcast tomorrow to discuss the transaction. It will air live at 1 p.m. Central time on our EDS Global Broadcast Network, and will be re-broadcast often over the next several days. You will receive more information on the broadcast shortly.
As we complete this agreement, I ask each of you to stay committed to your work, performing at the high levels of service we expect for our clients and from ourselves. I know I can count on you to deliver.
We are – and will remain – EDS.
Ron Rittenmeyer
May 13th, 2008
HP seals EDS deal; Services No. 2 behind IBM; Can Hurd run EDS better?
Updated: Hewlett-Packard CEO Mark Hurd said Tuesday he plans to use a familiar playbook to integrate Electronic Data Systems: Leverage scale, squeeze costs — and underpromise and overdeliver.
“We’re running the playbook we know how to run very well,” said Hurd, on a conference call with analysts. “We know how to get significant leverage out of our scale. We spent double-digit thousands of hours on the due diligence and planning. This thing (EDS) is very attractive. We didn’t bake in a lot of revenue synergies, but they are there.”
On Tuesday, HP officially announced that it is buying Electronic Data 
Systems for $25 a share, or about $12.8 billion (Techmeme). HP put an enterprise value of $13.9 billion on the deal, which will more than double HP’s services revenue.
Hurd’s bet: That he can run EDS–a company that has had flattish revenue growth since 2000–better. When questioned about EDS execution, Hurd noted that the company had done a lot of heavy lifting on its long-term restructuring. “If we do get the cost synergies done–and we will–we think this thing has tremendous opportunity,” said Hurd, who indicated that HP will get its synergies and deliver revenue growth with EDS.
Overall, Wall Street analysts were skeptical about the EDS purchase. What was truly stunning is that analysts weren’t budging from their skepticism given that Hurd is a Wall Street favorite. Analysts asked Hurd why HP didn’t acquire a smaller offshore player.
- The deal is expected to close in the second half of 2008.
- HP will create a new business group called EDS, an HP company. EDS will remain in Plano, Texas and be lead by current EDS CEO Ronald Rittenmeyer, who will report to Mark Hurd.
- HP will be the second largest IT services provider.
- HP said the transaction will be accretive to fiscal 2009 non-GAAP earnings and accretive to 2010 GAAP earnings. “Significant synergies are expected as a result of the combination,” the company said.
- HP will pay for EDS with cash and new debt.
Also see: HP’s bid for EDS: Opportunity costs loom
“We will be a strong business partner,” said Hurd, who on a conference call said the deal is important strategically and financially. Hurd also said he was confident that HP could execute on the integration of EDS and deliver savings and efficiencies.
HP and EDS executives played up the complementary nature of the two businesses (click for full slide):
Other key points from the conference call:
- Opsware will play a big role automating EDS and HP operations. EDS had been Opsware’s biggest customer.
- Rittenmeyer said the deal will push EDS’ zero outage initiative to a “new level”.
- There is very little overlap between the two companies, said Hurd.
- “EDS had a strong applications outsourcing business and frankly we didn’t,” said Hurd.
- Analysts were skeptical about HP’s opportunity costs related to the EDS deal.
- Analysts questioned the value of EDS and noted that many of its employees were based in the U.S. Rittenmeyer challenged that assessment and noted that many EDS customers are in federal, state and local government and can’t use offshore resources.
- HP didn’t discuss layoffs after the EDS deal, but Hurd said operating profits could be improved. That’s a hint that there may be some workforce restructuring ahead.
To allay any concerns about the EDS deal, HP upped its second quarter outlook and fiscal 2008 guidance (statement). The company said second quarter earnings were 80 cents a share and 87 cents excluding items. Revenue for the second quarter was $28.3 billion, up from $25.5 billion a year ago. Wall Street was expecting earnings of 84 cents a share, according to Thomson Financial.
For the third quarter, HP projected revenue between $27.3 billion and $27.4 billion with non-GAAP earnings between 82 cents a share and 83 cents a share. GAAP earnings will be 76 cents a share to 77 cents a share. Wall Street was expecting third quarter earnings of 82 cents a share.
HP projected fiscal 2008 revenue between $114.2 billion and $114.4 billion with earnings of $3.30 to $3.34, up from its previous range of $3.26 a share to $3.30. Non-GAAP earnings are projected to be $3.54 a share to $3.58, up from its $3.50 to $3.54 range. Wall Street was expecting $3.52 a share.
While EDS boosts HP’s services business dramatically, the company still has some holes to fill. This chart tells the tale:
Next up for HP may be a few business process outsourcing acquisitions.
May 13th, 2008
HP's bid for EDS: Opportunity costs loom
The debate around Hewlett-Packard’s purchase of Electronic Data Systems follows three primary questions. Is the EDS acquisition another Compaq–a deal that will take years to pay off? Is EDS the right acquisition for HP? Are there other places where HP should spend its money?
HP on Tuesday officially acquired EDS for $25 a share, or roughly $12.8 billion. EDS will become HP’s services unit.
Also see: Can Hurd run EDS better?
On Monday HP confirmed that it is in talks with EDS and the general consensus is that the deal makes strategic sense, but enthusiasm is muted (Techmeme). Dennis Howlett outlines the various reactions to the EDS deal. Dennis’ take: HP CEO Mark Hurd will make EDS more efficient and jettison management. Tom Foremski says that HP will still need a high-end consultant business and should make more software deals to address middleware. Om Malik says maybe EDS is part of HP’s grand plan to be a cloud computing giant. And Vinnie Mirchandani notes that EDS is focused on infrastructure outsourcing like HP so it’s a scale play. However, business process outsourcing is still a missing element for HP.
That latter point is important. Is HP fighting an old fight with EDS, a company that is running to keep flattish growth since 2000?
Here’s a look at the burning questions around this deal:
Is EDS another Compaq? Carly 2.0 references are being tossed around this morning since HP is making a big deal. The problem with that analogy: The Compaq deal actually worked out nicely. HP got scale, market share and squashed Dell’s direct model with a hybrid approach that Michael Dell is now trying to emulate. Sure the execution left a little to be desired and the court battle was ugly–although quite entertaining for me–but in retrospect buying Compaq was a good move. Cowen & Co. analyst Louis Miscioscia said in a research note that HP’s personal systems group is growing at an annual clip of 25 percent so the Compaq purchase “did turn out well,” but it was “many years in the making.” Another thread: Former CEO Carly Fiorina was ousted because she overpromised and underdelivered. Hurd is the master of managing expectations and is all about the execution.
Is EDS the right deal? Miscioscia raises an interesting point: EDS, like HP, is a specialist in IT infrastructure outsourcing (ITO). HP with EDS will have a lot of scale. However, IT infrastructure is yesterday’s news. “Our concern is that ITO is a mature, competitive, capital intensive business,” said Miscioscia. Simply put, HP’s purchase of EDS is a wash financially, but does have opportunity costs. HP should be buying Indian outsourcing companies like Cognizant, Satyam or a business process outsourcing giant like Accenture.
Deutsche Bank analyst Chris Whitmore has similar worries:
“Our preliminary analysis of the transaction suggests modest dilution, low returns and significant opportunity cost. This deal appears to be a cost-cutting / restructuring play (benefits from existing program largely realized) that will dilute HP’s overall growth rate and margin/return profile.”
Simply put, IBM could be the biggest winner from this deal over the next few years.
What else could HP do with its money? HP clearly needs to beef up its services business, but to compete with IBM it will also have to address software. More than 20 percent of Big Blue’s annual revenue comes from software. HP’s software business is about 3 percent of total revenue despite the acquisitions of Mercury Interactive, Opsware, SPI Dynamics, Bristol Technology and Peregrine. Those software purchases will come in handy when HP tries to automate the EDS data centers, but the gaping hole in Hurd’s portfolio is middleware. IBM has remade itself into a software and services company with high profit margins. If HP is going to do the same at some point in the future, it will need to beef up its software lineup.
May 12th, 2008
HP bidding for EDS; Deal would ramp up services
Updated: Hewlett-Packard is in talks to acquire Electronic Data Systems in a move that would reshape the technology services and outsourcing market.
In a statement Monday, HP and EDS confirmed the talks, first reported by the Wall Street Journal:
HP said:
HP today confirmed that it is engaged in advanced discussions with Electronic Data Systems Corporation regarding a possible business combination involving the two companies.
There can be no assurances that an agreement will be reached or that a transaction will be consummated. HP does not intend to comment further until an agreement is reached or discussions are terminated.
The deal, which reportedly be valued at about $12 billion to $13 billion, would instantly transform HP into an IT services powerhouse able to rival IBM. Buying EDS would also be HP’s largest purchase under CEO Mark Hurd’s tenure. A purchase of EDS would be the largest acquisition since HP bought Compaq for $20 billion in 2002.
If HP were to acquire EDS it would add $22 billion to revenue a year. For 2007, EDS reported earnings of $716 million. More importantly, EDS would bring to HP a series of long-term IT services contracts that Hurd could use to see hardware and software. For 2007, EDS (all resources) reported total contract value of new contract signings (TCV) of $19.5 billion, down from $26.5 billion in 2006. The 2006 figure included contract renewals with General Motors and the U.S. Navy totaling $7.5 billion.
In other words, HP’s business model would look a lot like IBM’s.
Also see: HP launches data center as a service; The cloud meets outsourcing
For the fiscal year ended Oct. 31, HP had revenue of $104.3 billion, up from $91.6 billion in 2006. Net income for 2007 was $7.3 billion, up from $6.2 billion. For 2007, HP had services revenue of $16.6 billion with earnings from operations of $1.83 billion.
Here’s Citigroup analyst Richard Gardner’s take:
The deal makes strategic sense. Outsourcing’s long-term relationships with large customers create potential revenue synergies. Operating more mission-critical datacenters should also give HP an edge in new-product development. HP likely plans to apply its infrastructure consolidation/modernization, automation, and virtualization skills to EDS’ infrastructure to boost its margins.
If this deal happens, more consolidation in the services industry is likely. Unisys would likely be a target just for its government contracts. Accenture could either go shopping or also become a target. BearingPoint could be a decent takeover. Meanwhile, Indian outsourcing firms such as Wipro and Infosys could also be in play as beefed up services giants eye low-cost delivery models.
March 31st, 2008
Shell farms out IT, telecommunications to EDS, AT&T, T-Systems for $4.2 billion
Royal Dutch Shell said Monday that it will farm out its technology and telecommunications infrastructure in three deals valued at about $4.2 billion.
The outsourcing arrangement is notable given that big deals are rare. Shell said in a statement that it will outsource its telecommunications and networking to AT&T in a $1.6 billion deal, hosting and storage to T-Systems, a unit of Deutsche Telekom, for $1.6 billion (1 billion euro) and computing support and systems integration to EDS for $1 billion.
Shell added that its master service agreements will kick in on July 1. Most of Shell’s IT staff will be transferred to the service providers. In a statement, Alan Matula, Shell’s CIO, said the outsourcing arrangement is a “major strategic choice” that allows Shell to focus on information technology that “drives competitive position in the oil and gas market.”
On the IT management front, EDS will have a few months of planning before playing outsourcing point guard. These large outsourcing deals can work well as long as Shell has a business process model and procedures to manage multiple vendors. Procter & Gamble has the modern-day blueprint for these arrangements via its deal with HP (case studies).
The primary IT management takeaways are:
- Maintain service quality and don’t rush new features out of the gate;
- Monitor the pacts via metrics and management time;
- Create a governance model to manage multiple vendors and resolve conflict in case providers have a spat.
Here’s how the deals break down.
AT&T: Under AT&T’s five-year deal with Shell, the telecom giant will manage the oil company’s communications infrastructure and mobile services. The deal is the largest international deal landed by AT&T. AT&T also manages the networks of Starbucks, GM and IBM. According to a statement, AT&T will be responsible for Shell’s wide area and local area networks, voice services, mobile service and managed security. AT&T will also deliver connectivity to Shell’s 1,500 corporate and operating units. AT&T will also manage 600 separate third party contracts with 300 vendors globally. As part of the arrangement, 560 Shell networking employees will become AT&T employees.
EDS: Shell inked a five year, $1 billion deal with EDS to provide desktop, help desk and on-site support as well as back-up and disaster recovery services. EDS will also provide mobile information protection and managed messaging services. EDS also becomes the integrator for Shell’s IT and outsourcing deals. As part of the deal, Shell will transfer 1,500 IT workers (contract and full-time) to EDS. EDS also added in a statement that it will migrate Shell to Windows Vista and work with its partners–Microsoft, SAP, Xerox, Sun and EMC–to deliver services to Shell.
T-Systems: Deutsche Telekom’s enterprise unit inked a five-year, 1 billion euro ($1.6 billion) deal with Shell. Under the arrangement, T-Systems will run Shell’s data centers including three in the Netherlands, one in Malaysia and one in the U.S. T-Systems will host most of Shell’s SAP instances. Shell has more than 7,400 application servers. Shell will transfer 900 employees to T-Systems.
December 10th, 2007
EDS lands $715 million outsourcing pact
EDS said Monday that it will manage Bristol-Myers Squibb’s IT infrastructure in a deal valued at $715 million over seven years.
According to EDS it will manage Squibb’s operations data at the pharmaceutical company’s data centers around the world. EDS will also take over help desk support and manage Squibb’s sales, scientific, SAP and employee environments.
EMC, Microsoft, Oracle and SAP are riding shotgun with EDS to provide products and services.
Last week, Squibb announced plans to lay off 10 percent of its workforce to save about $1.5 billion by 2010. Squibb also will cut its manufacturing facilities by 50 percent by the end of 2010 and pare its brands. The EDS deal appears to be part of Squibb’s overall effort to boost productivity.
October 3rd, 2007
EDS, Sabre extend IT services deal
EDS and Sabre Holdings extended and renegotiated a long running information technology services deal to 2014.
Under the extension, EDS said Wednesday that it will garner new revenue of about $630 million. The new agreement requires that EDS support “Sabre’s continued business transformation, including its move to open systems.” Sabre, which owns Travelocity.com, will use EDS’ IT frameworks and processes in the move.
EDS said the Sabre pact “represents a transformation of our relationship with Sabre.” In a nutshell, EDS will still run Sabre’s IT infrastructure, but also provide consulting services , said EDS spokeswoman Blake Hull. EDS manages Sabre’s IT infrastructure, including data center management, desktop support, application hosting, network management and data assurance.
Sabre began working with EDS in 2001 in a 10-year contract valued at $2.2 billion. The extension announced Wednesday will bring the total contract value to $2.83 billion over 13 years. Under the original deal, Sabre sold its infrastructure outsourcing business and technology infrastructure to EDS for $661 million. Sabre used to manage systems and software for the likes of US Airways, American and other airlines and travel services. Those contracts and 4,000 employees were transferred to EDS. The move allowed Sabre to focus on its travel business.
June 12th, 2007
IT giants hope to save $5.5 billion in energy costs
A who’s who list of Silicon Valley titans are joining forces to set aggressive goals to cut computer energy consumption and reduce greenhouse gas emissions.
The group, collectively called the Climate Savers Computing Initiative, consists of Intel, AMD, Google, EDS, EMC, Dell, HP, IBM, Lenovo and Microsoft to name a few. Partners outside of the tech industry include the Environmental Protection Agency, PG&E and the World Wildlife Fund among others.
This effort, announced in a press release earlier, is really the further mainstreaming of green IT practices. Gartner sees a day where every IT shop will have a green plan.
Climate Savers will set targets for energy efficient computers and components while promoting power management tools. Specifically, the group is setting a new 90 percent efficiency target for power supplies. If that bogey is hit, the group says greenhouse gas emissions will fall by 54 million tons a year and save more than $5.5 billion.
The manufacturers in the group will build products that at least meet the EPA’s Energy Star guidelines and then increase requirements. Businesses are also supposed to require high-efficiency systems. To support the effort, consumers will pledge to buy systems certified by the Climate Savers group.
Will this effort work? It’s quite possible since all the stars are lining up behind green IT. For starters, financial incentives abound. Energy consumption is everyone’s biggest bill in data centers and elsewhere. Meanwhile, tech vendors would just love another hardware replacement cycle. Meanwhile green IT is good marketing and investors are increasingly watching social consciousness.
February 8th, 2007
Verizon reels in IT services
Verizon in the fourth quarter decided to bring its technology services in house as it integrates the infrastructure from the MCI acquisition.
The news was disclosed on Electronic Data Systems' earnings conference call. EDS topped estimates with strong earnings of $254 million, or 47 cents a share, and proved its turnaround is well underway.
Historically, Verizon ran its own IT operations, but MCI outsourced to EDS. The EDS contract with MCI was set to expire in early 2008.
According to EDS CFO Ron Vargo:
"Verizon made the strategic decision to handle IT system support in-house, including the MCI IT services work that was being managed by EDS. The IT services contract between MCI and EDS included minimum annual purchase obligations that ran through January of 2008. However, it was amended to reflect the change in Verizon's strategy and contemplate a significant reduction in services that we've provided to MCI. In addition, the network agreement under which we procure telecommunications networks services from MCI was also amended to among other things, reduce our minimum annual spend commitment and offer us additional flexibility. As a result of the contract amendments, EDS transitioned most IT services back to the client in December of 2006 and received $90 million for assets and transition services."
While the Verizon move is notable, it doesn't reflect on EDS' prospects. For starters, EDS has been through this drill before. When US Airways and America West merged EDS was displaced for some services.
However, analysts are still trying to figure out the impact of the Verizon deal on EDS' outlook. UBS Equities analyst Adam B. Frisch said "EDS failed to explain the impact of the Verizon deal."
Perhaps more explanation will come when EDS meets with analysts Feb. 20.
Other EDS takeaways:
- EDS is deploying workers in low-cost locales. EDS had about 32,000 people in "cost advantaged location" more than double a year ago. "India is a primary beneficiary, as you know, but we continue to migrate workforces to other cost advantage areas in Brazil, Argentina, China and Hungary," said EDS chief operating officer Ron Rittenmeyer.
- EDS' Navy contract is driving revenue now. "The 7 percent increase in organic revenues was driven primarily by US Government, continuing theme of strong NMCI contract revenues, in the Americas improvement in select large accounts, and finally, in EMEA, UK Government mega-deal execution," said Vargo. For anyone tracking EDS, that's quite a turnabout. The NMCI deal had been a disaster, but EDS mopped up execution issues to save the deal.
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
For daily updates, follow Larry on Twitter.
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