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HP-EDS deal: What’s in it for Indian IT? - Views on News from Equitymaster
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HP-EDS deal: What’s in it for Indian IT?
May 15, 2008

About the deal
Hewlett Packard (HP), the world’s fifth largest IT services company, has acquired EDS (the second largest) for a sum of US$ 13.9 bn. The combination of HP and EDS will create a leading force in the global IT services industry. Post acquisition, the combined revenue of HP and EDS for the IT services business will be more than US$ 38 bn (in 2007, EDS and HP recorded IT services revenue of US$22 bn and US$ 16.6 bn respectively), which will take HP much closer to IBM (IT services revenue of US$ 54 bn in 2007) in the US$ 748 bn global technology services market. This acquisition is a strategic move by HP to bring in new and future source of revenue for the company. HP’s profitability is constantly declining for its current product based business. Through this acquisition, the company expects to grow its topline and margins as well in the future.

What will be the impact on Indian IT?
This deal represents consolidation at the high end of the IT services market, the space where Indian tech majors are increasing their presence in the US and across Europe by positioning themselves as an alternative to these US companies. Post the HP-EDS deal, HP will be positioned against Indian offshore providers (Infosys, TCS and Wipro) as an alternative to global technology services provider. This would bring in serious competition for Indian players in the industry.

  • Indian IT is HP’s hunting ground

    As a matter of fact, this is HP’s second shot at India’s software services market. After taking over the business of Digital Globalsoft and subsequently delisting the same from Indian stock markets, it has now got an indirect stake in Mphasis through the acquisition of EDS. HP’s takeover of EDS is aimed at ramping up its software services presence globally and in India. As Mphasis comes with the EDS acquisition (through latter’s 60% stake in the former), it is a huge opportunity for HP to expand its position in India and globally, especially since it is making a huge effort to grow its services business.

    Importantly, IT services are a big and strategic part of the marketplace and they influence technology purchases downstream. What this simply means is that if IBM is working with a client at the services level, there is more of a chance the customer will buy IBM technology. If HP, along with EDS’ capabilities, can get its foot in the door with more services customers, hardware and software sales could follow.

  • How are tech stocks reacting to the news?

    This deal could drive HP to invest in and develop a stronger offshore workforce to enable the combined company to service multinational clients. The company also plans to develop and improvise upon EDS’ offshore model and will quickly ramp up to better serve global customers. This deal’s ramification in the Indian IT space would spur new spate of consolidation and competition.

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