HP's Technology Services Power Play

Hewlett Packard Co.'s acquisition of global technology services company Electronic Data Systems Corp., say analysts, will challenge IBM's position as market leader -- if HP successfully integrates the two companies. As everyone knows, integration is where the rubber meets the road in M&A.

The transaction -- which totals $13.9 billion -- is expected to close the second half of this year and will likely more than double HP's services revenues, which amounted to $16.6 billion last year. HP says it will establish a new business group that will be headquartered in Plano, Texas, EDS's home.

EDS is a plum acquisition based on HP's stated objective of strengthening its service business. EDS has been extremely successful in building powerful and lucrative alliances, including its Agility Alliance, a coalition of market-leading technology and business service providers including Cisco Systems, EMC, Microsoft, Oracle, SAP, Sun, and Xerox. In this complex, multi-partner collaboration, EDS and its partners collaborate to design, build, and run a services platform and develop technology-based services for companies in a variety of industry sectors. This year, the alliance won an award for best practices from the Association of Strategic Alliance Professionals, a testimony to the work and talent of EDS's alliance managers because alliances are only as strong as the people that run them.

Analysts are already speculating about all of the cost cuts this marriage can bring about, including staff downsizing. But any IT service company's most valuable asset is its employees. And talented employees have been known to flee companies if they think layoffs are being planned.

HP has been criticized for poor management relating to some aspects of its acquisition of Compaq in 2002, so employees, investor, analysts -- and certainly competitors -- will be watching closely.