Analysis: Why Hewlett-Packard wants EDS

Mark Hurd, the CEO of Hewlett-Packard, likes automation, not people. Offshore labor will reduce costs, but automating things "eliminates costs," he has said.

Hurd wants "lights-out datacenters." He has not championed the need for developing a massive, people-intensive services organization -- which exactly what he will get if HP acquires Electronic Data Systems. Both companies confirmed Monday they are in "advanced" in talks about a merger.

[ For complete coverage of the EDS acquisition and its ramifications for HP, see InfoWorld's special report. ]

Plano, Texas-based EDS will add some 139,000 employees to HP's 159,000 workforce, but only about $22.1 billion in revenue, which is what it finished 2007 with. HP ended last year with $104 billion in revenue.

So where is the benefit to HP and EDS customers? And what are the risks? The last time HP decided to merge with a large Texas-based company it did not go so well. The 2002 Compaq merger engendered a contentious battle and a difficult integration, and was a major reason why Hurd's predecessor, Carly Fiorina, resigned in 2005.

Are they Blue? (No.)

Hurd has rejected the idea of developing an IBM -like services organization. And while the parallels to Big Blue's offerings will be fast and furious, there are critical differences between EDS and IBM global services.

EDS is focused on infrastructure services -- running datacenters, help desks, and networks, which gives Hurd opportunity to replace people in a datacenters with HP hardware and technology. And EDS would give HP access to a lot of datacenters

And then there's that animation question. "We have to automate more things," said Hurd, at a Morgan Stanley conference March 2007, in response to a question (download PDF) about IBM's services offerings. "When you take on a datacenter from a customer, a customer gave it to you for a reason. Typically they gave it to you because it's screwed up and they don't know how to fix it. So if you don't have the tools right, all you've done is inherited a screwed-up, underleveraged capability. So you have to transform it or else you're not going to make any money either."

IBM, like EDS, provides infrastructure services. But it is also big on management consulting, and that's where they part ways. EDS tried to become more IBM-like when it acquired management consulting firm A.T. Kearney in 1995, but this acquisition never really added to EDS's bottom line and A.T. Kearney returned to private ownership in 2006.

A match made in...?

Analysts aren't certain if the proposed merger will really help HP and EDS, even if they can see logic to some aspects of it.