EDS – another step closer to an HP channel?

(By Anthony Miller) HP announced last Friday that EDS CEO Ron Rittenmeyer is to retire at the end of the year, with HP’s corporate strategy supremo, Joe Eazor taking over the reins. That bit comes as little surprise; in his most recent role as VP, Transformation, Eazor led the EDS acquisition and integration process. But what is a bit of a surprise, in timing if not in substance, is that EDS is in effect to be ‘demoted’ and will now report in to Ann Livernore, who heads up HP’s Technology Solutions Group, rather than HP CEO Mark Hurd.

Now, you can argue the case that this is all for the greater good of ‘one HP’, as TSG ‘owns’ HP Services as well as HP’s mid-range and enterprise hardware and software businesses. Indeed, with just two months of EDS revenues counted, HP Services accounted for almost 60% of TSG revenues in HP’s Q4 (to 31st Oct.) and 26% of group sales. On the other hand, you could also argue that it sends a clear signal to the market that EDS’ new role in life is as an HP channel, arguably eliminating any remaining veneer of hardware ‘independence’.

I have to say I was sceptical when HP first rolled Services into TSG some years back for just that reason. I even forecast (incorrectly, obviously) that they’d see the error of their ways within 12-18 months and split Services out again, much like IBM. Well, with its huge focus on infrastructure support, it clearly made more sense for HP to keep its services business strongly tied to its hardware and that seems to have worked very well for them. But we think EDS is different. The original plan, to run EDS as a fourth business unit alongside TSG and HP’s PC and Printing groups, made sense. TSG would take over EDS’ low-level infrastructure support services, and EDS would take over HP’s enterprise-facing outsourcing and consulting/integration businesses. This would at least have pitched EDS as a peer to IBM’s services business from a market positioning point of view, with equal claims (however moot) to hardware ‘agnosticism’, if not independence.

Which makes me think this may not be the last card to be played in the deck. What these changes might presage, perhaps within the next several months, is an eventual split of TSG into an enterprise arm and a mid-market arm, each with its own services business. Eazor, who we understand has services blood coursing through his veins and is clearly on the management fast-track, could be a natural choice to lead the enterprise arm. While this doesn’t properly ‘fix’ the hardware/services tie-in, at least it has EDS (by then probably ‘sans brand’) playing on its home turf, and gives HP a very potent services-led proposition which would play better in the enterprise systems market, the high end of which is still dominated by IBM’s mainframe platform.

The other question this raises, of a far more parochial nature, is what happens to ‘our very own’ Bill Thomas, who is currently running EDS EMEA and is therefore also in effect ‘demoted’? About that we couldn’t possibly speculate!