HP Services

A two-headed tech monster

In the grand scheme of all things Hewlett-Packard, the firm's own information technology consulting unit, HP Services, is one small cog in an increasingly large machine.  In the world of tech consulting, however, it's a very big deal indeed.  The reason for that split perception is entirely a question of perspective: $20,977 million is a big number for a consulting firm, but only around 19 percent of HP's overall revenue take of $118.4 billion for 2008.  Add to that the fact that the company acquired tech giant EDS for $13.9 billion in August 2008, and the folks over at HP Services could be forgiven for thinking that they're not much valued at their parent company.  Little, however, could be further from the truth.

The major indication of that is that both EDS and HP Services have retained their separate brand identities since the acquisition went through, despite several crossover areas of service (application services, infrastructure and outsourcing).  As of January 2009, EDS became a business unit within HP's technology solutions group.  The business unit is led by Joe Eazor, senior vice president of EDS, who reports directly to Ann Livermore, executive vice president of HP's technology solutions group.

Growth of a giant

While the EDS acquisition was undoubtedly one of the major talking points in the tech business in 2008, it isn't the biggest deal in HP's storied history.  That particular accolade belongs to the 2002 merger with Compaq that propelled HP into the exalted realms of the tech mega-corporations.  The main drivers for the merger were related to hardware (servers, storage and PCs), but it also created a much more robust services division at HP, as the existing units from the two firms were combined under the umbrella of HP's technology solutions group in 2005.  

Headed by Livermore, the technology solutions group is tasked with providing a sterner challenge to IBM's dominance of the services sector.  That goal is another reason for HPers to cheer the EDS purchase: IBM's service revenue in 2007 (the last year prior to the EDS deal) came in at around $54 billion.  That same year, HP Services brought home $16.6 billion, while EDS pulled in approximately $22 billion.  Combining the two firms under HP's roof, then, creates an entityâ€"however disparate or fragmented at presentâ€"with less of a gap to the industry leader than would have been imaginable had they stayed separate.  That can be seen in the firm's 2008 results, which rolled EDS' fourth-quarter performance into HP Services' figures for the year.  The result: a 35 percent increase in year-on-year revenue, almost 25 percent of which can be attributed to just one quarter of EDS earnings.

Growth has been a major component of the HP ethos ever since the firm was founded back in 1939 by Stanford grads Bill Hewlett and Dave Packard.  Taking an initial investment of just $500, the pair got their business started by manufacturing electronics, and the company has rarely had occasion to look back since.  It wasn't until the 1980s, however, that the firm became synonymous with computer hardware; it rolled out its first PC for the public in 1980, and went on to establish itself as a leading provider of print technology over the next couple of decades.

But that wasn't all the firm was up to the in the 1980s and 1990s.  Having identified that technology was an area that required much in the way of advice and supportâ€"particularly as it pertained to utilizing it for business purposesâ€"the firm segued into the technology services arena as well.

The "other" John McCainâ€"and "that one" as well

The Compaq merger in 2002 is the deal that has come to represent the career of HP's then-CEO Carly Fiorina.  As the individual responsible for it, Fiorina was the one who paid the price for falling revenue as the personal computer and services markets entered a slump, leading to her demise in early 2005.  A high-profile, controversial figure, Fiorina was replaced with former NCR CEO Mark Hurd, whose style is so antithetical to his predecessor that Forbes dubbed him the "Un-Carly."  Not that that was the last the world would hear of Fiorinaâ€"she re-emerged during the 2008 U.S. presidential election as a key (and again high-profile) advisor to John McCain's campaign.

In a bizarre coincidence, meanwhile, a different fellow named John McCainâ€"John W. McCain, to be precise, and not to be confused with a certain high-profile Republican politicianâ€"made some headlines of his own at HP in 2006, a year after Fiorina's departure.  He came to prominence as the choice to replace HP Services head Steve Smith in October that year.  Not a change that would otherwise have made national headlines, it was notable in that Smith resigned from his position in the aftermath of an ethics investigation at the firm (in which he had no involvement) with no reason given for his departure.

A leaky board

That aforementioned ethics investigation came as the result of a companywide attempt to identify the source of leaked information that had been finding its way to a technology reporter.  Trouble struck when a third-party firm, employed by Chairman of the Board Patricia Dunn, was discovered to have used false pretexts to access phone records and private documents belonging to other HP board members, employees and journalists.  That led to CEO Hurd appearing before the U.S. House of Representatives Oversight and Investigations Subcommittee in September 2006, and criminal charges being brought against Dunn.

In light of those charges, Dunn resigned.  The SEC launched its own formal probe in late 2006; a California judge dismissed the charges against Dunn in March 2007, while the other third-party defendants pleaded no contest in exchange for completing 96 hours of community service.  In the wake of the investigation, in October 2006, HP appointed a new chief ethics and compliance officer, Jon Hoak, to ensure that the firm upheld ethical standards of business conduct.  The firm notes that it has made additional internal changes since this situation was uncovered.

On the acquisition front

 

In 2008, HP completed nine acquisitions, including the EDS deal, which was even more notable for the fact that it went through at a time when global credit markets were freezing due to widespread economic panic.   Acquisitions made later in the year included LeftHand Networks Inc., a leading provider of storage virtualization and iSCSI storage area network solutions, and Colubris Networks Inc., a global provider of intelligent wireless networks for enterprises and service providers.

Even as the EDS acquisition and integration was getting under way, HP was still integrating into its suite of services the purchases made in 2007.  Chief among those in terms of business generated to date has been the acquisition of EYP Mission Critical Services, a deal completed in November 2007.  A consulting firm specializing in strategic technology, planning, design and operations support for large-scale data centers, the unit enables HP to better assist its customers in building new or retrofitting existing data centers.  And it's paying off: In the six months prior to September 2008, HP signed data center design contracts with more than 60 clientsâ€"evidence that the firm is fully leveraging the EYP purchase.

Other notable 2007 purchases, meanwhile, include Opsware, Inc, a $1.6 billion acquisition in the data center automation field, completed in September, followed by the acquisition of Atos Origin's Middle East group (AOME), an independent group of companies headquartered in Bahrain.  With more than 450 employees at the time of the purchase, AOME is the leading SAP project implementer in the Middle East, and boosts HP's ability to generate SAP-related business in the region, as well as reinforces its expertise in the public sector and oil and gas segments.

Speeding up SOA

With technology peers now clamoring to get a piece of the growing service oriented architecture business, HP has ramped up its own SOA capabilities.  In January 2008, the firm released a new set of SOA governance software and services to help companies accelerate SOA adoption.  The newest release of HP SOA Systinet software delivers design and run-time governance of SOA services, as well as service lifecycle management through an enhanced integration with HP SOA Manager software.

The initial step of HP’s SOA strategy was the 2006 acquisition of Mercury, which specializes in business optimization software.  The $4.5 billion purchase also included Mercury subsidiary Systinetâ€"a firm that produces SOA governance and lifecycle management software.

Also in 2006, the firm opened three SOA competency centers (in Cupertino, Calif., Singapore and Bangalore) as part of a $500 million investment in its SOA service line.  HP also maintains SOA centers operating in Tokyo and Sophia Antipolis, France, and has worked with tech partners such as Microsoft, Oracle and SAP to help push adoption of SOA solutions worldwide.  Companies including Thomson Financial and DreamWorks Animation have already signed on to use HP SOA solutions.
Partnering up and shipping out

Those tech partnersâ€"Microsoft, Oracle and SAPâ€"are just a few examples of HP's friends, and partners, in high places around the world.  Also high in prominence on the firm's roster of partners is communications firm BT, with which HP forms the BT HP Alliance.  The focus of this alliance is to transform and simplify networked IT services for BT customers, improving overall service, flexibility and pricing.  HP's end of the deal is considerable, as witnessed by a $660 million contract amendment, signed in September 2008, which extends an agreement for HP to provide server and storage capabilities for BT until 2016.  According to HP, meanwhile, the BT HP Alliance has generated more than $5.3 billion of new revenue for the two firms since its inception in 2004.

HP Services has made a significant effort to up its outsourcing capabilities of lateâ€"another effort that paid off in 2008.  In February that year, the firm signed a $675 million contract to manage Unilever's technology infrastructure in the Americas, Asia, Africa, Turkey and the Middle East.  That contract represents an extension of an existing contract between the firms that will now run until at least 2015.  In addition, the company has announced 16 new client wins or contract extensions for EDS services since the acquisition closed in August 2008.

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HP Services


3000 Hanover Street
Palo Alto, CA 94304-1185
Phone: (650) 857-1501
Fax: (650) 857-5518
www.hp.com/hps

STATS


  • Employer Type: Public
  • Stock Symbol: HPQ
  • Stock Exchange: NYSE
  • President and CEO: Léo Apotheker
  • 2010 Employees: 324,000

Major Office Locations

  • Palo Alto, CA

Key Financials

  • 2010 Revenue: $126,000 million

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