HP, EDS, and the ghost of Carly

Hewlett-Packard's acquisition of the computer services giant mirrors, in some ways, Carly Fiorina's prior effort to but PricewaterhouseCoopers Consulting.

Gordon Haff
Gordon Haff is Red Hat's cloud evangelist although the opinions expressed here are strictly his own. He's focused on enterprise IT, especially cloud computing. However, Gordon writes about a wide range of topics whether they relate to the way too many hours he spends traveling or his longtime interest in photography.
Gordon Haff
3 min read

One of the curses, I suppose, of knowing one's high-tech history is that way too many news items cause me to go, "Here we go again!"

The proximate tidbit this time is, of course, the news that Hewlett-Packard is acquiring services giant EDS for $13.9 billion. Various news organizations had previously pegged the deal value between $12 billion and $13 billion. The New York Times described it at a $12.6 billion cash transaction.

When we last saw this play, it was with Carly Fiorina in the role of HP's chief executive, looking to spend a reported $17 billion to $18 billion on PricewaterhouseCoopers Consulting in 2000. A lousy set of quarterly results turned in by HP helped to scotch that deal. It also didn't help that a lot of observers thought that HP was offering way too much for an organization with $6.7 billion in annual revenues (2001) and about 33,000 employees.

IBM seemingly provided evidence of this view when it bought PwCC in 2002 for only about $3.5 billion. (A bit of an unfair comparison, given the economic and other events of 2001, but still.) Carly went on to get her acquisition kicks by gobbling up Compaq instead.

So what, if anything, is different this time around?

The money. I'll leave the detailed financial modeling to the appropriate specialists, but here are some back-of-the-envelope numbers. In 2000, HP was looking to pay more than two times the annual revenues for PwCC, which IBM ended up getting for about 0.6 times revenues instead. In this case, HP spent less money ($13.9 billion) for a larger ($22.1 billion annual revenues) organization. At least by this measure, HP's expenditure is therefore much more in line with what IBM eventually spent for PwCC than it is what HP had initially proposed.

Carly Fiorina
Credit: Hewlett-Packard
Carly Fiorina

HP management capabilities. Especially after this acquisition, something that's really striking is just how closely HP has maintained the course that Carly laid out. There's a slight difference, of course. If one goes back a few years, the boat may have been on a sensible bearing, but it was springing leaks in just about every compartment.

Carly has argued that post-Compaq financial problems just needed more time to work themselves out. Perhaps--but I'm skeptical. In any case, Mark Hurd has made remarkably few changes to HP's strategic direction since he took over. The benefits of scale promised from the Compaq buy have indeed proven out. EDS represents growth of scale along another axis--services--that puts HP that much more in the mold of IBM. The difference from times past is that Mark has a track record for keeping things ship-shape.

HP has made services acquisitions before, but they've been targeted and specialized. The most recent was of EYP Mission Critical Facilities, a data center design specialist that gives HP some legitimate differentiation in the power and cooling game. EDS is broader and bigger than even PwCC would have been.

On the one hand, this means a lot of personnel and fixed costs of the sort that have been no small issue for IBM--the company HP is attempting to mirror in important ways. On the other hand, if you believe--as I do--that companies (especially in small and midsize businesses) are increasingly going to move their computing off their premises and into data centers run by specialists, then acquiring the sort of large-scale hosted services business that EDS includes among its many operations isn't a bad direction for a system supplier at all.