The news this week that Hewlett-Packard has agreed to purchase Electronic Data Systems (EDS) for $13.25 billion, sets the stage for HP to mount a serious challenge to IBM’s dominance in the computer consulting and services industry.
HP has long desired to be a serious contender in the consulting business, but despite a number of acquisitions it has primarily had to contend itself with picking up pieces of the software support and services end of the business. The deal this week instantly makes HP a serious player in data center management, network management and application outsourcing.
Prior to the deal, IBM stood alone as the worldwide IT services leader with about 7.2% of the market and $54 billion in revenue, according to a report released this week by research firm Gartner. EDS was second on the list with 3% market share and about $22.1 billion in revenue. HP was the fifth largest services provider, behind Accenture and Fujitsu, with 2.3% market share and $17.3 billion in revenue.
Together the firms will have about $39.4 billion in revenue, still a distant second to IBM’s $54 billion, but HP chief executive Mark Hurd believes the synergies between the two companies and the opportunity to leverage one another’s customers could close that gap.
For HP, the company gains the opportunity to extend the sale and support of its software and hardware into sectors like government and manufacturing where EDS has had a strong presence. The benefits for EDS aren’t as obvious, but one thing is certain, EDS has had difficulty growing the business on its own.
IBM managed to grow its IT services revenue 12.2 % in 2007 over 2006, and the IT services sector in general had a big year, growing revenues 10.5%. (Total market revenues according to Gartner were $748 billion in 2007, compared to $677 billion in 2006.)
EDS revenues in comparison grew only 3.4%.
Clearly a shakeup was in order for EDS. HP just needs to make sure it doesn’t get saddled with an underperformer.
| Worldwide IT Services Revenues |
| Company |
2007 |
2006
|
| IBM |
$54.1
|
$48.2
|
| EDS |
$22.1 |
$21.4
|
| Accenture
|
$20.6
|
$17.2
|
| Fujitsu
|
$18.6
|
$17.9
|
| HP
|
$17.3
|
$16.0
|
| CSC |
$16.3 |
$16.1
|
| Others |
$559 |
$541.1 |
Source: Gartner
Figures in billions
|
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