EDS Buy Could Give HP Edge Over Dell, Analysts Say

Hewlett-Packard's acquisition of Electronic Data Systems won't hurt Dell in the next few years, but it could affect Dell's chances of getting larger services contracts in the long term, analysts said.

Although services companies tend to be hardware agnostic, EDS' operations will be geared more toward HP's hardware offerings, giving HP a better chance to land managed services than Dell, the analysts said.

HP earlier this week announced plans to acquire EDS for US$13.9 billion. The deal is expected to close in the second half of this year.

HP acquired EDS to boost its services offerings, which could help it compete with IBM and Accenture, two of the top five players in the services market. The acquisition also gives HP a leg up on Dell if that company decides to expand its consulting services and enter the global services market. Dell has a small presence in the services market, focusing on customizable remote-management services.

Many of EDS' clients use Dell hardware, so EDS will need to continue working with Dell in the next few years to service the contracts, said Kurt Potter, research director at Gartner. Customers won't change to new hardware overnight, Potter said.

EDS has worked with Dell since the 1990s. In 2004, EDS signed a seven-year agreement with Barclays Bank of the U.K., under which it supplied 41,700 Dell desktops. Dell also provided 60,000 desktops and laptops as part of a 15-year, $6.9 billion EDS services contract related to the U.S. Navy Marine Corps Intranet project in 2000.

Dell's services focus on customization and automation and are geared toward the small and medium-size enterprise segment, but there is some customer overlap with HP, Potter said. Dell offers light consulting, while HP will be able to offer extensive consulting, which could help it land larger managed-services deals, such as outsourcing and data-center contracts.

HP already has much bigger IT services revenue than Dell, Potter said. In 2007, HP brought in $4.8 billion from managed IT services, while Dell earned only $609 million, according to Gartner.

The companies have different services philosophies and are following different strategies to grow, Potter said. HP acquired EDS to boost consulting, services operations and outsourcing revenue, while Dell is trying to offer customizable managed services by providing users a service catalog, with light consulting, Potter said.

For example, Dell recently ditched its predefined support model and started offering ProSupport, in which support can be tailored to the products and services a customer needs.

With EDS, HP is trying to compete more with IBM and Accenture, not Dell, said Paul Roehrig, principal analyst at Forrester Research. With EDS, HP can build up its consulting, service delivery and outsourcing capabilities, the three important elements of offering IT services, Roehrig said.

Dell is not at the top of the list to provide managed services, and it's going to be an uphill fight if the company chooses to get into the large global services business. The company has the brand equity and supply chain, but services are not at the core of Dell's offerings, Roehrig said.

HP's acquisition hasn't changed Dell's services strategy, said Cathie Hargett, a Dell spokeswoman.

"Customers are telling us that services can be simplified and that they should give companies more control, value and flexibility -- not complex, long-term contracts and armies of consultants," Hargett said.

Dell will continue to offer services such as remote management for everyday routines such as virus updates, asset management and software licensing. It acquired remote management services companies such as Everdream and Silverback to boost these efforts.

"We believe this is the best way to improve the price/performance of services for companies who spend 70 percent of their budgets just keeping the lights on," Hargett said.

Dell's business relationship with EDS will continue, Hargett said.

"Dell's relationship with EDS goes back to the early 90's and continues today. We don't anticipate any change in this in the short- to midterm." Hargett said. Dell also has strong relations with outsourcers and integrators, including IBM and Affiliated Computer Services, Hargett said.

A HP representative declined comment.