HP’s acquisition of EDS

By now, HP’s decision to acquire EDS is no longer news; indeed, it is almost two weeks old. And I am somewhat underwhelmed (this word is used frequently by Americans, alhough I am not sure if it is a legitimate word in English vocabulary) by the general lack of coverage beyond the first day or two.

So- if this deal does go through- will it be a big deal? In terms of the deal size, it will be large enough to leave investment bankers, accountants, lawyers and others drooling. But the impact will be more on the IT services industry overall- and consequently, on clients using such services. Here are some thoughts on how suppliers might be impacted:

1. For the first time ever, IBM will see a large competitor that has enough muscle both in hardware and services.
2. This new combine will get access to additional ready-to-use offshore capability in the BPO space (remember EDS acquired Mphasis in the not too distant past?). This of course complements HP’s own India  ops that are significant enough in the IT services space.
3. Large non-India based global Consulting & SI firms such as Accenture, Deloitte, CapGemini and others will have to deal with a new threat- and HP-EDS may have the stomach (and deep pockets) for an intense war.
4. Indian IT services companies like TCS, Infosys, Wipro etc. will have one more 900 pound gorilla to worry about. HP-EDS may become a serious competitor simply because it gets invited to bid for large deals- a space that Indian players have not completely dominated. The same deep pockets mentioned above can cause pain to the highly margin-sensitive Indian players. Erosion in margins also unleashes another dynamic- market capitalization will decline, and with it, Indian companies’ ability to make their own acquisitions overseas.

And what about the impact on client companies? Here too, the impact can be felt in many ways:

1. HP-EDS can unleash a price war by lowering prices in the short run.
2. Offering hardware bundled with software and services can be an attractive proposition for clients, who may get a real option to IBM.
3. EDS clients who may have felt trapped under the weight of long-term contracts may no longer feel an urgent need to switch suppliers.