HP Denies EDS Business Is For Sale


Hewlett-Packard Wednesday denied that HP CEO Meg Whitman and the HP board of directors have explored options for selling its Electronic Data Systems (EDS) outsourcing business.

Sources, however, told CRN that HP has considered the sale of the EDS business and even put out feelers to potential buyers.

HP has shopped EDS to private equity, but nothing has come of those discussions, sources said.

A spokesperson for HP Enterprise Services denied that ever was the case.

"HP is not having, nor has it had, discussions about selling its Enterprise Services business," the spokesperson told CRN. "HP is 100 percent committed to Enterprise Services and will discuss its plans for this business on Oct. 3 at the company's Securities Analyst Meeting."

In 2009, HP combined EDS with its own smaller services business and rebranded it as HP Enterprise Services.

EDS would be easy to break out because it is not heavily integrated with the rest of HP's businesses and essentially operates as a standalone business within the company, sources familiar with the situation told CRN.

"EDS is probably the one business unit that HP could sell at this point," one source familiar with the matter told CRN, speaking on condition of anonymity. "Private equity would make sense [as a buyer] because they could come in and overhaul the whole thing. There are clients there -- EDS is not dead by any means."

[Related: After Rocky Q1, HP CEO Whitman Makes Cost Cutting Top Priority]

HP acquired EDS in 2008 for $13.9 billion under former CEO Mark Hurd, but last month wrote down $8 billion from the deal.

A sale of EDS would take pressure off HP's balance sheet which has been hit hard by the $11 billion acquisition of Autonomy. Both Standard & Poor's Ratings Services and Moody's Investors Service have downgraded HP's short-term and long-term ratings within the last year.

EDS had around 140,000 employees when HP acquired it, but the unit has shed some 30,000 employees since then as a result of layoffs and employee departures, according to Business Insider.

HP Enterprise Services is expected to take the brunt of the 29,000 layoffs HP is planning by the end of 2014, with Bloomberg reporting in May that the unit will shed between 10,000 to 15,000 jobs.

In HP's fiscal third quarter, EDS' IT outsourcing revenue dropped 6 percent year-over-year, while overall Services division revenue dropped 3 percent compared to last year.

Whitman is in the midst of a campaign to simplify HP's business. Getting rid of EDS could set up HP for a return to the product-centric approach it favored prior to the EDS deal, sources said.

"This would be a major move and an indication of a major change in strategy," Simon Palmer, president of STA, a Tustin, Calif.-based HP partner, said in an interview.

HP's EDS acquisition was part of Hurd's mission to move beyond hardware and challenge IBM Global Services and other services giants.

Whitman has said on numerous occasions that HP's relentless cost cutting in recent years has created challenges for the Services division.

"This is not a quick fix," Whitman said of Services during HP's February first quarter earnings call. "And frankly, this dates back, in my view, to the assets that we acquired back in 2008 and then ran right into the 2008, 2009 global slowdown, and we took a lot of costs out of this business."

HP last month parted ways with Enterprise Services chief John Visentin, replacing him with Mike Nefkens, senior vice president and general manager of the EMEA branch of HP Enterprise Services.