Hewlett-Packard hopes the deal, which it officially announced Tuesday, will give the company the scale it needs to compete more directly with I.B.M. in helping corporations manage their technological infrastructure.
But the immediate reaction from Wall Street has been one of unusual and pronounced doubt in Mr. Hurd. Shares of Hewlett-Packard fell 5.5 percent on Tuesday, to $44.27, after falling about 5 percent Monday when news of the acquisition first hit.
Industry analysts said that despite Mr. Hurd’s recent successes, there is reason for skepticism about the merger. In particular, it is unclear how Mr. Hurd will achieve his goal of doubling profit margins at E.D.S. without significant layoffs — a tricky task at a company that depends on the brains of its 140,000 employees to provide the outsourcing services that are the core of its business.
At present, I.B.M. is the leader in the services market, with revenue around $54 billion annually. E.D.S. revenue is about $22 billion annually, and Hewlett-Packard, $16.6 billion; the combination of the two companies will put it second to I.B.M. in the $748 billion industry, according to estimates by the Gartner Group, a market research firm.
But industry analysts say that the deal poses some considerable challenges for Hewlett-Packard.
The services business has notoriously low operating margins. At E.D.S., for instance, operating margins run about 6 percent, while H.P. and I.B.M. have margins of 10 percent to 11 percent.
Around half of E.D.S.’s revenue comes from the government and financial services companies, which are both under extreme cost-cutting pressure, Mr. Bracelin noted.
In addition, E.D.S. is on the wrong side of a major geographical transition in the industry. Technology outsourcing has moved heavily overseas in the last few years, putting support duties in the hands of lower-cost employees in places like India. E.D.S. has about two-thirds of its employees in the United States.
Hewlett-Packard Is Facing Skep
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Hewlett-Packard Is Facing Skepticism on EDS Deal
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Hewlett-Packard hopes the deal, which it officially announced Tuesday, will give the company the scale it needs to compete more directly with I.B.M. in helping corporations manage their technological infrastructure.
But the immediate reaction from Wall Street has been one of unusual and pronounced doubt in Mr. Hurd. Shares of Hewlett-Packard fell 5.5 percent on Tuesday, to $44.27, after falling about 5 percent Monday when news of the acquisition first hit.
Industry analysts said that despite Mr. Hurd’s recent successes, there is reason for skepticism about the merger. In particular, it is unclear how Mr. Hurd will achieve his goal of doubling profit margins at E.D.S. without significant layoffs — a tricky task at a company that depends on the brains of its 140,000 employees to provide the outsourcing services that are the core of its business.
At present, I.B.M. is the leader in the services market, with revenue around $54 billion annually. E.D.S. revenue is about $22 billion annually, and Hewlett-Packard, $16.6 billion; the combination of the two companies will put it second to I.B.M. in the $748 billion industry, according to estimates by the Gartner Group, a market research firm.
But industry analysts say that the deal poses some considerable challenges for Hewlett-Packard.
The services business has notoriously low operating margins. At E.D.S., for instance, operating margins run about 6 percent, while H.P. and I.B.M. have margins of 10 percent to 11 percent.
Around half of E.D.S.’s revenue comes from the government and financial services companies, which are both under extreme cost-cutting pressure, Mr. Bracelin noted.
In addition, E.D.S. is on the wrong side of a major geographical transition in the industry. Technology outsourcing has moved heavily overseas in the last few years, putting support duties in the hands of lower-cost employees in places like India. E.D.S. has about two-thirds of its employees in the United States.