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A SPECIAL ANNEX NEWSFLASH

Analysis of Three Hewlett Packard Megadeals

An HP "Hat Trick!"

HP Services Scores Three BIG Wins against IBM, EDS

PHOENIX, Apr 15 - Three big wins in two consecutive business days... It doesn't get much better than that in the global IT services competition.  Or in any major league contest, for that matter. Yet that's the kind of a "hat trick" that a relative newcomer to the global IT services arena has just scored (see HP Breaks into IT Services Major League, Sep 17, 2002).  

And HP did it against the world's two top contenders - IBM and EDS.

  • On Friday, Apr 11, HP Services, a $12 billion-plus Hewlett Packard Company unit, revealed that it had won a $3 billion, 10-year managed services contract at Cincinnati's Procter & Gamble Company (P&G).  

  • The same day, HP Services disclosed that it had also won a multi-year, multi-billion contract at Sweden's telecommunications giant Ericsson.  Terms of the deal weren't disclosed.

  • And on Monday, Apr 14, HP Services completed the two-day "hat trick" with a $600 million, seven-year win at Bank of Ireland.

Three victories in three different industries in two global markets in two days.  No wonder Ann Livermore, the head of HP Services, was gloating.  

"These deals position us as an alternative to IBM, and really show that IBM is beatable," she told Reuters.  She also claimed that HP Services is now the No. 3 competitor among the top IT services vendors.

It'll be close, a nip and tuck race for the "bronze."  Three vendors are hovering around the $12 billion- revenue mark - Accenture, CSC and HP.  We'll let you know who ends up as the No. 3 vendor in the industry when we complete our annual Global IT Services Heptathlon results.

Meanwhile, there is no question that HP Services has now muscled into the top tier of global IT services providers.  And like IBM a decade earlier, HP has had to overcome the stigma of being perceived a hardware vendor.

"Our (HP) top executives have demonstrated to the senior management of these three accounts our total commitment to the (services) market," said Joe Hogan, HP Services' vice president of marketing and a former EDS executive.  "That was the key to our wins against bigger competitors."

Just over six months ago, EDS was thought to have an inside track at P&G, for example.  Then it ran into image and credibility problems in late September 2002, which caused the customer to delay the decision.  Yet even as late as January of this year, EDS seem to be in the lead.  That's when HP brought in its heavy guns who managed to close the deal in record time.

"It took a village..." said Steve Huhn, an HP Services vice president of business development and strategy, and a former IBM executive, who was instrumental in engineering the three victories.  He added that the key reason for HP's success was its willingness to partner with customers in creating new values for both, not just saving money on existing operations.

Of course, that's exactly what we predicted would happen over 13 years ago, as we saw the IT industry consolidating around the turn of the millennium (see the chart from the Industry Stratification Trend, Mar. 30, 1990).

Nor were these three "megawins" some isolated examples of HP's determination to break into the major leagues of IT services.  Since the merger with Compaq a year or so ago, HP Services has won over 200 managed services deals, HP executives said.

As a result, outsourcing grew by 14% in HP's fiscal first quarter that ended Jan 31, according to HP's Livermore.  HP Services total revenue during that three-month period was $3 billion, or 17% of HP's global quarterly revenues ($18 billion).

Stand by for more on HP Services as we analyze the business results of top vendors for our 2003 Global IT Services Heptathlon.

Meanwhile, how did the stockmarket react to HP "megawins?"  Take a look at this five-day stock price chart:

As you can see, Wall Street shrugged it off, just as it used to do in the early days of IBM's efforts to break into the IT services arena. Too many hardware analysts following HP?  Too many hardware mindsets at HP?

Probably a bit of both... again, just as was the case with IBM some 12 years ago.  Welcome back to the future!

 Happy bargain hunting!

Bob Djurdjevic

For additional Annex Research reports, check out... 

2003: HP's Hat Trick (Apr 15)

2002: HP Breaks into IT Services Major League (Sep 17, 2002)

A selection from prior years: Industry Stratification Trend (Mar. 30, 1990).

Or just click on and use "financial engineering" or similar  keywords.

 






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Volume XIX, Annex Newsflash No. 2003-04
April 15, 2003

Editor: Bob Djurdjevic
Published by Annex Research, Inc.
e-mail: annex@djurdjevic.com

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