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Is HP-EDS Deal About the Cloud or the Heavy Metal?

Posted by: Rob Hof on May 13, 2008

Judging from Hewlett-Packard CEO Mark Hurd’s conference call this morning, ably reported by Between the Lines’ Larry Dignan, HP’s $14 billion purchase of Electronic Data Systems is all about cutting the costs of running customers’ existing data centers. But some folks, such as Om Malik, contend that HP must be looking ahead to a future of cloud computing, in which such hardware is just the foundation for a future in which computing over the Internet is provided just like electricity today:

This is HP’s bet on those very same trends — utility and cloud computing. HP might have finally realized that the future is about offering hardware as a service. Lets look at some of the recent developments:

* HP bought EYP Mission Critical Facilities. John McCain, senior vice president and general manager, HP Services, at the time of the deal remarked: “Acquiring EYP Mission Critical Facilities boosts HP’s ability to help customers transform their data centers and build dynamic computing environments from the ground up.” (via Rich Miller.)
* HP bought Opsware, a data center automation software company started by Marc Andreessen, for $1.6 billion in July 2007.
* In March 2008, HP announced its data center-as-a-service initiative, targeting large companies.
* Yesterday, The Times of London reported that HP is close to buying 24 data centers currently owned by British Telecom in Europe for about $3 billion. The Times report says BT will provide Internet bandwidth, networks and remote access to HP, an area where the Silicon Valley-based giant isn’t that strong.

If you plot the EDS bid against these four recent developments, it is not that difficult to postulate that HP is building its own cloud focused on large global companies.

Others, such as Nick Carr don’t think Hurd’s head is in the cloud just yet:

I would argue it’s backward-looking: an acquisition aimed at boosting profitability through consolidation and cost reduction in a mature business. The transition to the cloud will, for big companies, be a slow one, and there will continue to be much money made in running client-server infrastructures for many years.

Vinnie Merchandani also notes that this deal will not immediately send HP into the clouds:

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.

I suspect Hurd has both worlds in mind, and as a supreme pragmatist, not a visionary, Hurd’s probably smart in keeping a foot in each one.

That is, if he can overcome the challenges of integrating such a large and different company, as the Register points out:

Let’s face it, these two firms have cultural issues in abundance. Can Californians and Texans really along? Arnold Schwarzenegger might get on with George Bush, but that’s pretty unusual. We’re talking about the company that defined Silicon Valley here – all free thinking, collaborative, innovative spirit – coming together with a hierarchical, buttoned up Texas-based outfit whose most salient characteristic as far as the outside world was concerned was hostility towards facial hair.

Both stereotypes have as much to do with history now though. What we’re left with is a services giant looking for a future, and a server and printer company that still yearns to be a services company.

Reader Comments

brian t

May 14, 2008 5:39 AM

"Can Californians and Texans really get along?"

Sounds like Compaq all over again - they were based in Houston, after all. I used to work for Compaq in Enterprise support, and I think it's fair to say that there's still a lot of Compaq hardware being sold, with HP badges. Proliant servers, Enterprise Storage Array - all Compaq, with a major cadre of DEC people on the Storage side. HP's top Storage offering, the XP range, is made by HDS and rebadged.

If it wasn't for the Compaq acquisition, HP would be a printer and ink company, since Carly sold off their technical product lines. Now HP will be an infrastructure outsourcing company, thanks to EDS. Oh well, if the USA can be one country, HP can be one company.

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