Electronic Data Systems: At your service, HP
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Hewlett-Packard’s $12.8-billion deal to acquire Electronic Data Systems is all about slow and steady revenue.
Corporate belt-tightening + slumping consumer confidence = a rough time to sell PCs and printers.
But IT services, ah, now there’s a smooth business. The idea is to sign huge companies to multiyear contracts setting up their data centers, software systems and other high-tech stuff, then watch the money flow in like clockwork. That can help offset the ups and downs of selling hardware. Here’s more from our story:
Analysts said the bid for Electronic Data showed that HP was trying to protect its balance sheet from the softening economy. The company is the worldwide leader in personal computer and printer sales and a strong competitor in computer servers, but sales of those products ebb and flow. In contrast, the services business -- which includes consulting as well as setting up and running corporate data centers, software and other technology -- often grows during downturns as companies outsource tasks to reduce costs. Plus, corporations often sign multiyear contracts that pay out in predictable ways. The services business also holds greater potential for growth than many of HP’s computer and printer businesses, said Tom Smith, a computer hardware analyst at Standard & Poor’s Equity Research. ‘There are more ways to add and invent new consulting services if you can establish long-term contracts,’ he said. ‘And if you have good services, it supports the next round of hardware sales, and so on. It creates a steadier business.’ David Garrity, director of research at Dinosaur Securities, said offering strong services had made hardware companies such as HP ‘a trusted advisor to a business.’
-- Chris Gaither