HP undertakes massive rejig to integrate with EDS

Having successfully completed the $13.9-billion acquisition and merger of IT consultancy EDS a few months ago, IT services giant Hewlett-Packard (HP) is now taking steps to integrate both organisations.

To begin with, effective November 1, EDS will become the fourth division of HP globally, and operate as an independent entity. The move will make EDS the face of HP’s services activities in India and globally. HP derived about $3 billion in revenues from its India operations in 2007.

The EDS-Mphasis combine has around 25,000 employees in India. Post-merger with EDS this year, HP has close to 55,000 employees in India, making it HP’s largest group in terms of headcount. Its major competitor IBM has around 70,000 employees in the country.

“EDS and its subsidiary Mphasis will now be the face of HP’s IT outsourcing services in India, managing all services related to infrastructure, business critical optimisation, application services and outsourcing services. Besides, globally and in India, large government organisations’ total outsourcing and multi-year contracts will be driven by EDS,” a high-level HP source noted.

HP currently has three divisions — the Technology Solutions Group (TSG), Printing Solutions Group (PSG) and Imaging and Printing Group (IPG). As part of the integration plan, HP Services (HPS) — a unit of TSG, which is also HP’s largest business unit, — will cease to exist with effect from November 1, the day after HP announces its annual results. Consequently, the Indian arm of HPS, which handles functions such as application services and systems integration, will now move almost entirely to the EDS fold.

Because of its size in terms of headcount, most of the employees who were part of the HPS division in India would be moved to EDS’ payroll, sources explained.

Once the new business model becomes operational, according to sources, HP’s next move will be to delist Mphasis from the Indian stock exchanges and fully integrate it with EDS. “This is a key step in the worldwide integration of the two companies,” an HP source told Business Standard.

Meanwhile, HP sources said the IT giant is keen to have all its applications employees worldwide under the Applications Business Unit (ABU) of EDS. “Employees in HP’s applications services units in India have been sent feelers to move over to EDS. However, such a transfer is purely voluntary with salary and other perquisites remaining the same as in HP. IT consulting is becoming a huge focus area for HP, and this will help consolidate operations of both companies under a single roof,” the sources said.

This move emphasises the importance of the applications business within HP, strengthens its global delivery model, and provides customers with additional offshore and nearshore capabilities.

With revenues of $16.6 billion and net income of $1.8 billion, HPS contributed 16 per cent of HP’s global revenue in 2007. Besides HPS (which will cease to exist), the TSG comprises Enterprise Storage and Servers (ESS) and the HP Software division. TSG showed combined revenues of $37.7 billion in 2007.