End users 'biggest winners' from HP's acquisition of EDS

End users could be the big winners following Hewlett-Packard's announcement that it is to acquire outsourcing company EDS for £7.13bn.

End users could be the big winners following Hewlett-Packard's announcement that it is to acquire outsourcing company EDS for £7.13bn.

The deal is widely seen as a bid by HP to expand its services business to challenge IBM's dominant position.

Analysts have said the success of HP's challenge will be limited by the strength of the BM brand, R&D budget, and business consulting services.

However, end users could benefit during the transition by pressing HP and EDS for more favourable terms on outsourcing deals.

Robert Morgan, director of supplier support company Hamilton Bailey said the current economic climate and strong competition in the outsourcing market will put HP under severe pressure, giving IT directors leverage for better deals.

Commentators have advised that IT directors look at their contracts and evaluate whether there is an opportunity to make improvements.

HP will want to hold on to as many EDS customers as possible, particularly financial services customers. This will put end users in a strong position to negotiate changes, said consultants.

Phil Morris, managing director at outsourcing advisor Equaterra, said EDS customers may be able to invoke change of control clauses in their existing contracts to press for better deals. HP and EDS's competitors are likely to muscle in by offering HP and EDS customers attractive deals. This will give IT directors more negotiating power.

Morgan said this was particularly likely because HP has given very few details of the business benefits it expects from the acquisition. It has revealed little of the proposed business model and organisational structure which could help allay customer concerns.

"Considering how long they have been discussing this deal, it is bizarre they have not published more details of the organisational synergies they expect," he said.

IT analyst group IDC said it was unclear whether all EDS customers would be pleased about handing their operations over to HP.

"HP is a company with a very different history and culture to EDS, and unless HP could guarantee that the elements that supported the choice in the first place will not disappear, the shift could make some customers very nervous," IDC said.

Connect, a 50,000-strong independent international HP user group, was formed in May 2008 to consolidate Encompass, ITUG and HP-Interex EMEA into a single independent worldwide community of users of HP enterprise technologies.

Nina Buik, president of Connect, said, "We are always concerned about turns in business that could impact our members."

Commentators have also speculated that cultural differences may push HP staff to leave the organisation, unwilling to fall under EDS-style management for fear of losing their freedom around decision making.

The departure of key HP staff is expected to put the company under even greater pressure as end users seek the relative safety of more stable competitors. There are concerns that this could again affect the quality of customer service.

Simon Robinson, research director at The 451 Group, said the impact of the deal for customers would depend on how successfully HP could execute the integration of the two companies.

Although some customers had experienced the painful integration process after HP's acquisition of Compaq, he said HP was a changed organisation with chief executive Mark Hurd appearing to succeed where his predecessor had failed.

The only certainty, said analysts, was that outsourcer consolidation was set to continue, with the fate of companies such as Atos Origin, CapGemini, CSC and several others to be decided in the coming months.

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