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HP may have its eye on Scient

As Hewlett-Packard revamps its services plan, analysts say it wants to expand through an acquisition or internal growth and may go digging among the fading dot-com consultancies.

A sure-fire way to quickly bolster information technology services: Buy a company in need of cash and assistance.

As Hewlett-Packard revamps its services plan, analysts say the company has its sights on expanding through an acquisition or internal growth. A likely candidate would be Scient, they say, one of the many cash-strapped Internet consultants that is reportedly in talks with a suitor.

"Scient would be a good notch on HP's belt," said Tom Rodenhauser, an analyst who heads Consulting Information Services. "The Scient name is extremely damaged but not destroyed."

Analysts say an acquisition could happen soon since HP recently failed in its bid to acquire PricewaterhouseCoopers' global management and consulting organization.

The company also recently launched HP Services, a new division centered entirely on accelerating the growth of the computing giant's IT services business. Longtime executive Ann Livermore was named president of the new operating unit, in charge of beefing up the company's activities in areas such as consulting, outsourcing and support.

An HP spokesman acknowledged that Scient had been considered.

"We had evaluated Scient to determine a strategic fit within HP in the past, but it's HP's policy not to comment on discussions which may or may not be under way," said Randy Lane, a spokesman for Palo Alto, Calif.-based HP.

Sources said the San Francisco-based consultancy is in negotiations with a suitor and that an announcement is expected soon. A Scient spokeswoman declined to comment.

On the acquisition hunt
When HP dropped the PwC bid last November, executives said they were still interested in expanding the company's services business, possibly through future acquisitions. At last week's CeBit trade show, HP Chief Executive Carly Fiorina said that despite the harsh economic climate, HP will continue to invest in areas where growth makes sense.

An acquisition deal for Scient isn't a far-fetched idea. Like most of its competitors in the once high-flying Internet consulting sector, Scient has recently had a challenging time amid the dramatically changing market landscape. Scient, along with rivals iXL Enterprises, MarchFirst, Razorfish and Xpedior, has been hit with a tanking stock, layoffs and weak financial results.

Like others in the Web consulting arena, Scient is undergoing changes. One possibility would be closing its San Francisco headquarters and moving all operations to the company's New York offices, according to sources familiar with the situation.

Scient was a pioneer in the once blazing market for Net consulting services, making a name for itself as a Web-savvy innovator that knew how to jump-start companies' online initiatives. Four-year-old Scient, led by consulting veteran and ex-IBM Global Services executive Bob Howe, enjoyed a fair amount of success in its prime while most of its old-line counterparts, including IBM Global and KPMG Consulting, scrambled to address the Internet.

A wave of consolidation has already helped thin out the industry's ranks. Earlier this month, Cambridge Technology Partners, one of the first of the large system integrators to turn its attention to the Web, was sold to network software provider Novell. Software maker Commerce One also scooped up a Net consulting firm last year with its purchase of start-up AppNet.

Some players, including Xpedior and MarchFirst, have been weighing out several financial options. Xpedior, for one, is seeking a buyer for all or parts of its remaining operations.

"A good deal" for Scient?
George Price of Legg Mason said HP's recent move to elevate the role of IT services is a big statement and means the company is on an aggressive growth path.

"HP would be a good deal for Scient," he said. "They are probably in a weak position at this point, even relative to other (players) in the industry...They were the poster child of e-business growth, and when demand softened, they went higher, and they've (also) fallen faster."

Rodenhauser said another reason why an HP-Scient tie-up could make a lot of sense lies with Howe's well-respected reputation in the industry. Howe was instrumental in building IBM Global's consulting practice before he took the CEO spot at Scient.

"Bob Howe has a stellar reputation in one sense and has the credibility to work within an HP environment," Rodenhauser said. Scient "is not going to become the next McKinsey at this point, so their options are limited in a sense. Scient perhaps can do much better to go inside HP and try to change the consulting world through HP."