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Hewlett-Packard CEO Mark Hurd

Hewlett-Packard Acquires Electronic Data Systems

May 14, 2008 07:00 AM
by Denis Cummings
HP’s acquisition of the technology services giant puts the company in position to challenge IBM’s control of the computer-services market.

30-Second Summary

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With the completion of the $13.9 billion deal, Hewlett-Packard becomes the world’s second-largest provider of technology services, trailing only IBM.

The computer and printer specialist had been looking to expand its services business, a lucrative global market that is predicted to grow eight-percent a year for at least the next five years. The market has been controlled by IBM, Computer Sciences Corp. and EDS.

HP is more than doubling its services business revenue, adding EDS’s $22.1 billion 2007 revenue to its $16.6 billion, but it is still well short of IBM’s $54 billion.

Analysts feel that the acquisition is a bold, but risky move for HP. Although it immediately becomes a force in the IT services market, it will also face problems integrating the operations-based EDS into its product-based company.

“On paper an HP-EDS combination looks workable,” say analysts at the Ovum Group, “But in practice it could prove anything but.”

News of the acquisition caused HP’s stock to tumble, as analysts thought HP paid too much.

The acquisition is HP’s first since buying Compaq for $19 billion in 2002. HP had difficulty integrating Compaq, and CEO Carly Fiorina lost her job over it. However, it helped HP overcome rival Dell in the PC market.

HP hopes that history will repeat itself, and the EDS acquisition will help it overcome IBM in the services market.

“It’s a great move for them,” says ING Groep executive Minaz Sarangi, “They’ll be much more of a competitor to IBM now.”

Headline Links: ‘HP to buy EDS for $13.9 billion’

Reactions: HP’s stock drops, ESD’s increases

Opinion & Analysis: How does the move affect HP?

Background: Previous acquisition attempt

Reference: The history of HP and EDS

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