HP Buys EDS for $13.9 Billion

HP has been keen to expand its services business for years, and EDS is not its first attempt to do so. In 2000 HP dropped plans to acquire PricewaterhouseCoopers Consulting, which was ultimately scooped up by IBM two years later, for $3.5 billion.

HP's services business generated only 16 percent of its total 2007 revenue of $104.3 billion, while IBM makes more than half of its annual revenue from services. The company increased its revenue estimate for fiscal year 2008 on Tuesday morning, saying it now expects revenue of between $114.2 billion and $114.4 billion, up from a previous estimate of $113.5 billion to $114 billion. The company also reported preliminary results for its second fiscal quarter, ended April 30. It made revenue of $28.3 billion for the quarter, compared with $25.5 billion a year earlier. The figure beat estimates of analysts polled by Thomson Financial, who had expected $27.98 billion. HP also said estimated eanrings per share for the quarter were $0.80, up from $0.65 one year earlier. Excluding acquisition related costs, EPS was $0.87, beating the analyst estimate of $0.84. It expects to announce final results on May 20.

Buying EDS will give HP the muscle it needs to become a serious threat to IBM's services business, said Kathryn Hale, research vice president at Gartner, also speaking before the companies confirmed the deal. HP has the resources and the wherewithal to acquire EDS and improve its business results, she added.

EDS reported revenue of $22.1 billion for its fiscal year 2007, which was up only a fraction from 2006. Net income was $716 million, up from $470 million.

EDS and its subsidiaries employ about 139,500 people worldwide, while HP ended its 2007 fiscal year with about 172,000 workers.

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