HP Must Avoid Conflict With EDS Deal, Partners Say

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Hewlett-Packard's $13.9 billion acquisition of services giant EDS makes HP an instant player in the global IT services arena, but solution providers say the vendor needs to guard against conflict with its enterprise services partners.

"It's a good move for HP because HP has been sitting on the sidelines while IBM's global services has been going gang busters," said Mark Melillo, CEO of Melillo Consulting, an HP enterprise partner in Somerset, N.J. "But I do have some concerns with more conflict with HP in accounts around services. HP is very direct centric."

He noted that HP has more sales reps and that HP software reps now have services quotas, which has fueled a tendency to take more services deals direct, he said.

Another HP solution provider, who asked not to be identified, added that HP has been trying to push its services solution providers into midmarket accounts by turning over formerly direct maintenance contracts over to the channel. "But all the heavy lifting is in the midmarket. Many of us are already selling services into enterprise accounts and HP needs to deal with that," the solution provider said.

Everything Channel, in an early morning conference call Tuesday with HP CEO Mark Hurd and EDS CEO Ron Rittenmeyer asked what would be the impact on HP service authorized enterprise partners and how they would integrate with the new EDS services organization.

"It's good for HP so I think it will be good for our channel partners," said Hurd. "Our commitment to channel partners is in the DNA of HP. I don't think there's going to be anything but goodness in the context of that. If you look at our outsourcing business today and what we do in Consulting and Integration, we try and make it very complimentary with our partners so I don't anything but goodness."

Other solution providers were concerned that HP purchased one of the world's largest VARs, which could create potential conflicts. "Well, partners need to hold on to their seats and guard their customers with this," said Don Richie, CEO of Sequel Data Systems, an HP solution provider in Austin, Tex. "I guess now HP is a full fledged VAR too now. I will keep doing what we do best but this certainly is not good news for the partner community."

Rittenmeyer noted that EDS would compliment HP's services business. "The overlap [in customers] not very extensive," he said. "We have customers in same space but those are few and far between. From our point of view we will continue to offer the best solutions for the best value. HP is a part of that and they will continue to be part of that. They will add to our portfolio from a technology standpoint."

HP's acquisition of EDS, announced today, is expected to close in the second half of calendar 2008 and to more than double HP's services revenue, which was $16.6 billion in fiscal 2007. The combined services businesses at the end of each company's fiscal 2007 amounted to $38 billion, with 210,000 employees doing business in 80 countries, Hurd said in the conference call.

Once the acquisition is complete, the new company will be branded EDS-an HP company. EDS will remain headquartered in Plano, Tex. and EDS CEO Rittenmeyer will head the new organization and report to Hurd.
The outsourcing business within HP's Technology Solutions Group, head by Ann Livermore, will move over to EDS, Hurd said.

Livermore will retain responsibility of HP's enterprise servers and storage, software and technology services, which consist primarily of break/fix, Hurd said.
Hurd noted that EDS would be a multivendor services organization and not just focus on HP technology. "In HP services today we work with all kinds of different customers' IT infrastructure," he said. "In the services industry have to able work with all infrastructures in customers IT architecture and it's is pretty disparate. There is no real change in that perspective."

Melillo added that the acquisition of EDS could end up being good for solution providers because it strengthens the HP brand in services. "But it all depends on how they execute," he said.

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