Hewlett-Packard’s plans for EDS

15 September 2008:

Officially, EDS is now an HP business unit based in Plano, Texas, and its CEO, Ron Rittenmeyer, now reports directly to HP (HPQ) CEO Mark Hurd. It’s a setup that suggests EDS will continue to call many of its own shots, while benefiting from HP’s economies of scale in functions like human resources, finance and IT.

When HP announced the EDS acquisition deal in May, that structure caught a number of observers by surprise. Some had expected EDS would fall under the command of HP’s enterprise technology group (also known as the Technology Solutions Group), which has blossomed into a growth and profit machine under the leadership of executive VP Ann Livermore.

Instead, in his first public comments about the deal, Hurd took a deferential tone when talking about EDS’s services legacy. “Frankly, EDS is more mature and more sophisticated in many of the processes they bring to market than we are,” he told investors.

But a clearer picture may emerge on Monday, when Hurd, Livermore, Rittenmeyer and other HP executives brief analysts on their post-merger plans for EDS. Don’t be surprised if beginning Monday, the EDS crew in Plano appears to be on a somewhat shorter leash than they did a few months ago.

Why? HP always had too much at stake to let EDS do its own thing. EDS is a sprawling services business with a bloated cost structure and more than 100,000 employees – making it cumbersome enough to weigh down HP’s profits and sink its stock price unless executives can tame it. A big reason HP felt confident enough to do the deal in the first place is that executives felt they’ve gotten good enough at finding savings (and presumably issuing pink slips) that they can take at least $750 million in costs out of EDS.