Well, the new year is barely in swing and the action in the technology universe has already started. If the first few days of 2006 are any indication, merger and acquisition activity this year in IT will make the level of transactions in the past years seem humble.
Already Hewlett-Packard is making serious moves and courting Computer Sciences Corp., the global consultancy giant. A litany of reports have been flying around claiming that the Blackstone Group and HP are considering jointly buying CSC to the tune of around $12 billion. Don’t take this move lightly folks; such a deal would have tremendous ramifications across the entire industry and send a ripple effect through HP’s channel partners.
There are three immediate areas where I see this as a boon for HP and its future.
First, HP has long tried to bolster its own internal technology services. The company has always admired what IBM has done with its IGS (IBM Global Services), but it never really had the size and scale to compete effectively. Buying CSC would immediately give HP size and scale and put it on the same playing field as IBM and EDS.
Secondly, CSC would give HP an enormous presence in one of the hottest growth markets in the industry: managed services. CSC has a huge stake in managing the technology networks of its customers, a business coveted by every channel player regardless of size. Rather than building such a business from scratch, which takes loads of time, money and successful case studies, HP instantaneously would become one of the leaders in outsourced managed services.
And finally, with hardware prices on servers, desktops and even printing products constantly in a downward spiral, bolstering its services business with such magnitude would have the much-needed effect of taking pressure off HP’s other business units, which, although they may not be as profitable, are still strategic to the company.
But like everything else in life, with reward comes risk. Financial implications aside, acquiring CSC, even a minority stake, opens a Pandora’s box of tremendous channel conflict with HP’s current solution providers. IBM has wrestled for years to avoid channel conflict and has rewrote and re-established its rules of engagement more times than I can remember. The vendor finally seems, after many years, to have struck a balance with its Global Services arm and its integrator base, although things still get cantankerous between the two at times.
After a very turbulent year with its channel partners, HP was able to gain steam and channel favor by the end of 2005 with some innovative programs and better communications. Buying CSC could put these moves and good faith at risk.
So while I believe the move to go after CSC could have tremendous upside to HP’s future growth and business direction, it could also alienate its channel base if not managed and planned correctly, something the company cannot afford to do.
Elliot Markowitz is editor at large at The Channel Insider. He is also editorial director of Ziff Davis Media eSeminars. He can be reached at Elliot_Markowitz@ziffdavis.com.