Ovum says HP/EDS merger raises more questions

John Madden, analyst at Ovum claimed HPs acquisition of EDS, was truly historic for the IT industry. HP’s outsourcing organisation will be folded into EDS, which now becomes HP’s fourth business group.

EDS CEO Ron Rittenmeyer will continue in his leadership role, and the EDS Agility Alliance will continue with EDS’s new parent company as a primary member.

Madden believes some of the most critical questions on headcount reduction and improving EDS’s cost structure – which will be accomplished, no doubt, by leveraging HP software, tools and best practices – are still to come.

"There’s also the important matters of how acquiring EDS will alter HP’s go-to-market model, sales structure (both in outsourcing and in the company as a whole) and services delivery organisation,” he said.

At the same time as the announcement on the finalisation of the EDS deal, HP released its quarter three financial earnings.

Madden believes HP couldn’t have asked for a better earnings report to precede the close of the EDS deal – and assure investors, shareholders and customers that its financial base is more than solid.

According to Madden, in the just completed third quarter, net revenue was US$2.7 billion, up 10 percent from a year ago (5 percent when adjusted for currency), with growth in all regional segments – including 4 percent growth in the Americas. (By contrast, EDS reported a 6 percent dip in its Americas revenue for its most recent quarter.

“In the context of the EDS deal, HP Services (HPS) delivered one of its stronger quarters in recent memory, particularly in consulting and outsourcing. Overall HPS reported US$4.8 billion in revenue, a 14 percent year-on-year increase,” said Madden.

HP's Consulting & Integration and Outsourcing grew 13 percent and 18 percent respectively, compared to last year, while Technology Services, grew 13 percent from a year ago, he said.