HP May Be Backing Away From Its Outsourcing Business: Report


Hewlett-Packard is considering selling or shutting down parts of its outsourcing business, which may include parts of its EDS business, acquired last year in a bid to better compete against IBM, according to published reports.

HP CEO Mark Hurd is considering the move to pull back from HP's relatively low-margin business process outsourcing business, Reuters reported, citing unnamed sources.

"The calculation is, can we get more cash for this asset now vs. the cash flow the asset is expected to generate in coming years?" Reuters quoted one source it said was familiar with HP's plans.

More details may become available when HP reports its earnings on Tuesday afternoon.

HP declined to talk about the possible change in its outsourcing business and about whether it would discuss such a change at its earnings call.

If true, the move would be a significant change for HP and its strategy of competing against archrival IBM with its acquisition last year of EDS.

HP acquired global integrator EDS last year for $13.9 billion in a bid to challenge IBM for global leadership in the services business. EDS at the time was one of the largest vendor-independent outsourced services companies in the world, and an integration partner of both HP and IBM.

The takeover of EDS was expected by HP to immediately make the combined company a formidable competitor against IBM in enterprise services. Prior to the acquisition, in the first quarter of 2008, HP's global services business generated $4.4 billion in revenue, compared to $14.6 billion for IBM.

IBM in the second quarter of 2009 reported global technology services revenue of $9.1 billion, down 10 percent from the previous year, and global business services of $4.3 billion, down 15 percent.

HP on Tuesday said its third quarter 2009 services revenue increased 93 percent to $8.5 billion, compared to the same quarter last year, due primarily to the EDS acquisition. This includes infrastructure technology outsourcing revenue of $3.9 billion, and a total revenue for technology services, application services and business process outsourcing of $4.5 billion.