HP-EDS Merger - Effect on Indian IT Companies

(Posted first at my other blog.)

HP's plan to buy EDS for $13.9B is one of the bigger news of last day or so and it obviously has everybody's attention.   Analysts, bloggers and just about anyone in IT has already commented on this development with much more insight than I would have.   A lot of strong theories are floating around as to why this deal happened (cloud computing, scale in services, profitability etc).   While its hard not to connect EDS' strength in data centers with HP's core hardware skills and chalk it up as a huge investment in infrastructure/cloud computing space, I want to quickly focus my comment on a few things concerning Indian IT industry.

Indian IT providers (SWITCH companies) will definitely be viewing this development with a hint of worry.   These companies are investing a lot in their infrastructure offerings now that the bread-and-butter IT services such as ADM, BPO have hit a maturity level.   They have just started winning big in this space and are now able put up a fight against an IBM or Accenture.   They also have their sights on Indian domestic market where IBM has done well.   Now they will have another titan to compete with.   Both IBM & HP can provide a more integrated service offering - hardware, software and services - than these companies.   Added to that, HP will now have a strong positioning in government-related deals which typically are more stable and run longer.   Thus, HP will have its hand on the handle of the entrance door in such deals.

While HP covers some ground (infrastructure that is), it remains to be seen if it can effectively compete with IBM at all levels.   If only HP can pick up a strong business consulting organization.   Game on, then.

Coming to SWITCH companies - unless they evolve from a single-dimensional (Services) to multi-dimensional (H/W, S/W, Services), they will have tough time ahead.   I think the easy ride of offshoring is over. Execution and process excellence which these companies pride in are as important as strategy but it alone can't provide competitive advantage.   Time to plan for future is now since HP will saddled with integration issues with EDS deal.

A final thought.   Some have said that HP wants to get on to outsourcing/offshoring bandwagon.   If HP was looking purely at that, it would have considered buying an Indian IT company with better margins.   Obviously, Mark Hurd has a bigger plan.   Does he have one more integration/turn-around in him?   It will be interesting to watch how this plays out.