Can HP compete against IBM in services?

Peter Cohan — Tue, 13 May 2008 09:30:00 EST

Filed under: Deals, Hewlett-Packard (HPQ), International Business Machines (IBM), Electronic Data Systems (EDS)

The Wall Street Journal reports that Hewlett Packard (NASDAQ: HPQ) will spend $12.8 billion to buy Electronic Data Systems (NYSE: EDS). While this combination would make HP the second largest, behind International Business Machines (NYSE: IBM) in computer services, this may not be a good way to spend $12.8 billion.

That's because EDS and HP would under perform in services when it comes to profitability. EDS's bigger business earned a 1% net profit margin in the first quarter. But HP's services business generated a far higher 9% estimated net margin. Unfortunately -- for reasons described below -- the combined company will probably have lower margins.

Meanwhile, IBM's profit lagged HP's slightly -- it made an estimated 7% net margin in the first quarter in its services business. But IBM is and will remain a much bigger player. Combined, EDS and HP's services business will control 5.3% -- lagging IBM. That's because IBM controlled 7.2% of the tech-services market in 2007 while EDS was a distant second at 3% and HP was fifth, with a 2.3% share.

Continue reading Can HP compete against IBM in services?

Can HP compete against IBM in services? originally appeared on BloggingStocks on Tue, 13 May 2008 09:30:00 EST. Please see our terms for use of feeds.

Read | Permalink | Email this | Comments

Dell follows HP's lead, delves more into services

Brian White — Wed, 06 Jun 2007 15:00:00 EST

Filed under: Products and Services, Competitive Strategy, Dell (DELL), Hewlett-Packard (HPQ), Wal-Mart (WMT)

Dell Inc. (NASDAQ: DELL)'s immediate foray into retail stores (with Wal-Mart Stores/ NYSE: WMT) is now being joined by a new "services" focus that will leverage the use of partnerships and acquisitions to have a goal of higher profits. In an age where Dell's direct business model and absence from retail has hurt its business considerably in recent years, the company's abrupt about-face under returned CEO and company founder Michael Dell was not unexpected.

Dell has needed bold moves and fast this year, and so far the company has not disappointed there. The company has re-loaded its executive team, brought back the founder to lead the company again, is entering retail in a closely-watched experiment and is now focusing on offering services, in addition to low-margin commodity computer products.

Hewlett-Packard Co. (NYSE: HPQ) has a strong lead here in the services sector, and it breaks out that piece of its business every quarter in its financial results. With its printer and imaging business background, in a way, the Palo-Alto company has always been in the services business. Dell's services business, however, while it exists, has not been a priority recently. Hence, when computer purchasing shifted from Dell's corporate staple to the retail consumer market, Dell's margins and profits suffered -- while HP's impeccable and fast timing helped it to capture more services business, as well as more retail consumer computer product market share.

Michael Dell told the Financial Times in London that "Dell's services business is growing faster than sales of computer equipment and represents a huge opportunity ... I think you will see some more acquisitions to add capability to our services team." Roughly translated, Dell may be on the acquisition hunt soon as it ramps up its services business unit.

Dell follows HP's lead, delves more into services originally appeared on BloggingStocks on Wed, 06 Jun 2007 15:00:00 EST. Please see our terms for use of feeds.

Read | Permalink | Email this | Comments