HP and EDS - Is it a Win-Win? I Predict a Lose-Lose

Implications: My experience with EDS goes back to 1962, not because it was day one for EDS, but instead, to tell you how bad I am at predicting success stories.  What I’m good at is predicting failures. 

Analysis:  I had read in one of the trade journals that a guy in Texas started a new service bureau.  If you were in the biz in 1962 you would know that running a service bureau was like running a janitorial service, or a maid service, or a trash disposal company.  Not very glamorous.  Working for a major computer company was where the action was.  Even though IBM was king, there were several aspirants that felt they had a chance at this new and exciting industry, like Control Data Corp., Sperry Rand, Burroughs, Univac, Philco, RCA, Honeywell, GE, Cray Research, and maybe some other wannabies.  I asked myself, “Why would a guy with a great job and successful track record with IBM leave all that behind to launch a grunt type company doing what others didn’t want to do for themselves?”  Well, 46 years later, only one answer would be enough -  for a current net worth of about $4.4 billion.  It’s pretty clear that Ross understands the adage of “Timing is everything.”  EDS has never been the same since Ross took his check for $7 billion from General Motors.  And in recent years, EDS tried all kinds of remedies.  This merger is more like EDS gave up and threw in the towel.  Do you need proof?

•  Several new executive managements took over but didn’t have the propulsion magic.  In my opinion, EDS directors looked to the “has-beens” instead of the “will-bes” for recovery and they failed because the tech world no longer caters to old paradigms.
•  EDS replaced starched shirts with turbans at one-sixth the cost of a techie, but apparently they needed more than that.
•  EDS acquired a boutique consulting firm just to get a few whiz kids to wave the magic wand.  Stockholders paid a premium for that; the whiz kids made a killing; the magic wand never showed up.  EDS got snookered.
•  EDS shed some businesses, but unlike other successful turnaround efforts, EDS never acquired a strong in-the-groove company to enrich the revenue stream.
•  Speaking of revenue stream, it languished, and so did that of the industry.  Eleven companies make up the field of “We’ll do it for you” tech services companies.  IBM Global Services and Accenture are the only two that understand what it takes to succeed.
•  The claims of the deal makers need to be checked.  Even after the announcement, EDS stockholders are in the red.  EDS employees are putting their personal welfare way ahead of client needs.  Air travel between SFO and DFW will skyrocket while HR expenses will be slashed.  Don’t look for a net gain in the next two years.
•  What the dealmakers are counting on is “biggest,” and therein lies their next mistake.  What HP/EDS will need is new thinking, and they won’t find that in either of the two pieces.  It’s in some garage somewhere, but the suits don’t go to garages except to service their Cadilacs.In my opinion, the brain drain of the deal makers is still what is plaguing the idea that bigger is better.  HP and EDS now believe that a $66 billion company is going to give IBM Global Services a run for its money.  Add that as the eighth mistake of why biggest isn’t the answer.Truth in reporting:  EDS is included in Automation in Banking - 2008 because I invited the company several years ago and they continue to provide updates to my annual requests.  HP has never been in my report even though I have invited the company to participate every year.  ACS, CSC, IBM-GS, and UIS are in the report.I have never owned stock in HPQ or EDS.