EDS Woes Are the Latest HP Distraction

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Hewlett-Packard says it’s not and hasn’t tried to sell the EDS professional services unit, which is reportedly the source of much of the struggling vendor’s fiscal problems. EDS is fast becoming the immediate distraction to a company trying to make a turnaround.

Inside 24 hours, Hewlett-Packard Corp. was hit with a headline heard round the world that it was unsuccessful in shopping the former EDS professional services unit. Within hours, came the follow-up headlines of HP partners expressing concern about the potential EDS sale, the clashing cultures between EDS and HP,  and, ultimately, the HP denial that any such effort took place or will.

EDS, once the largest independent professional services firm in the channel, was acquired by HP amid much fanfare. The $13.9 billion deal would propel the existing HP Services and the company as a whole to a better competitive position against IBM.

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Things haven’t worked out so well. Last quarter, HP wrote down $8 billion of the remaining value in the EDS acquisition, revealing that the Dallas-based unit is the source of much of HP’s immediate fiscal woes. Since then, many legacy EDS professionals and staffers are exiting at an alarming rate, taking up positions at Dell (Perot Systems) and Xerox (ACS).

>>EXCLUSIVE: Check out Channelnomics' analysis of Ingram Micro and The 2112 Group's SMB 500 list of fastest growing VARs. <<

HP’s dream of leveraging EDS to become the next IBM global services isn’t bad. There’s a lot of merit behind creating another mega-professional services organization that also has business process outsourcing (BPO) capabilities. That’s what Mark Hurd was thinking when he made the deal that eventually led to the creation of HP Enterprise Services in 2009.

Since 2008, though, professional services on the EDS and IGS level have taken a beating. Enterprise professional services were an already low-margin business because it’s so labor and people intensive. India outsourcing giant Infosys is going through the same challenges as it’s seeing much of its low-hanging fruit commoditize and it lacks the ability to address more complex technology issues.

What makes some professional services shops work well is the agnostic tying with product sales, short-term deployment engagements and ongoing managed services. IBM capitalizes on its services division because it sells virtually any product – Blue or not – to meet the customer needs. Solution providers do well with professional services, because they’re often attached to the sale of multiple vendor products.

While some solution providers may be dismayed at the potential sale of the EDS business, here are a few things to think about.

  • There’s more reason to worry if HP wasn’t considering the sale of EDS and other troublesome units. If jettisoning underperforming or bad products will make HP healthier, isn’t it the right move?
  • HP exiting professional services (or at least giving a large part of its capacity) is a good thing for the channel. If the solution provider need is more professional services support, there is a glut of supply from other outsourcers, pro services, BPO and distribution shops.
  • HP rethinking its professional services could spur growth in the channel. Two years ago Symantec got out of the professional services business, giving it all to qualified partners. The result has been nothing short of stellar growth among those select partners, as professional services adds to their bottom line and stimulates future product sales.

Conversely, HP’s keeping EDS intact as part of its Enterprise Services unit could equally prove beneficial in the long run. HP has high ambitions in cloud computing, security and analytics. These are disciplines that require tremendous planning, implementation and workflow support, not to mention data center capacity for delivering automated services. EDS has all the elements to help fulfill HP’s future ambitions.

Rather than applauding HP for leaving nothing off the table, the market is going to reward the Palo Alto, Calif., company with a “damned if you do, damned if you don’t” reaction. The idea of discarding the PC business last year wasn’t bad, just ill-timed. The troubles caused by Autonomy’s performance are more disconcerting, but no one is suggesting that HP hit the ejector button. What’s needed is calm and patience as HP tries to sort out its issues. Everything else is just insider chatter signifying little.

>>EXCLUSIVE: Check out Channelnomics' analysis of Ingram Micro and The 2112 Group's SMB 500 list of fastest growing VARs. <<

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