HP could use a better services arm - while it has some marquee clients like P&G, it is inconsistent in most outsourcing deals. EDS could use a layer of cover. The company which just about defined outsourcing has been running hard to stay even - flat growth over the last decade. So, at a macro level the potential combination announced today makes sense. Actually mouth watering at a price of just 0.5 EDS revenues for a blue chip client base. (HP is trading at 1.2x)
But EDS is not Accenture or PwC (which IBM acquired) or TCS or Infosys. Its major strength is still in infrastructure outsourcing (though it has been growing its application and BPO capabilities nicely). HP's outsourcing is similarly more skewed towards infrastructure. So, it is a scale play. But the timing is risky because infrastructure outsourcing is being challenged by data center consolidations, a secular decline in processing, storage and network charges and emergence of utility and cloud computing models. Not the world either EDS or HP grew up in. Talking about world - HP's hardware business has seen significant success in a number of emerging economies - running that infrastructure as a service does offer some unique opportunities.
Unlike Microsoft, HP does not not have lots of cash-on-hand. Only about $ 10 bn. If I was Mark Hurd, I would spend $ 5 bn towards a smaller infrastructure player like ACS (or even better one with footprint in emerging markets) and spend the rest (plans to spend $ 12 bn on EDS) on a BPO and an application outsourcing play. In fact around infrastructure, I would think even smaller and buy a cloud computing player and use HP's vast channel to build market on top of it.
But I am not Mark Hurd. If I was, I would get my print ink at a huge discount :)
Update: read more of my perspectives here
Update: Computerworld summarizes other perspectives on the combination
