hp eyes ibm with multibillion-dollar deals

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    HP Eyes IBM with Multibillion-Dollar Deals
    Fri April 11, 2003 06:34 PM ET
    By Siobhan Kennedy
    NEW YORK (Reuters) - Hewlett-Packard Co. on Friday said it won multibillion-dollar deals with consumer goods giant Procter & Gamble and wireless network gear maker Ericsson, turning up the heat on rival International Business Machines Corp. in the hot market for computer services.

    Hewlett-Packard HPQ.N said the contract with P&G PG.N was worth $3 billion over 10 years.

    The terms of the Ericsson deal were not disclosed, but analysts said Hewlett-Packard would run Ericsson's entire internal technology operations in a pact also worth billions of dollars.

    "This is a big deal because Hewlett-Packard has not been a name that's been associated with large deals in the (information technology) services space," said Adam Frisch, an analyst with UBS Warburg in New York.

    "But two large infrastructure deals from two household names really puts them in the market," he said.

    IBM IBM.N and Electronic Data Systems Inc. EDS.N are two of the biggest players in the sector.

    Hewlett-Packard will manage P&G's computing and network operations, including its data centers, desktop computers, software programs, and help desk facilities, the companies said in a statement.

    As part of the deal, about 1,850 P&G employees from 50 countries will become Hewlett-Packard employees.

    The companies said they expect to reach a definitive agreement in mid-May.

    Hewlett-Packard said it would take over and manage Ericsson's worldwide information technology operations, including its mainframe and mid-range servers, desktop computers, local area network (LAN) and help desk facilities.

    Ericsson will transfer all its services staff to Hewlett-Packard. The Swedish company did not say how many employees that entailed.

    When Ericsson announced its intention to outsource the business last year, it said the services unit employed about 4,000 people. It has since fired 1,200 of those employees and said it wanted to keep about 200 people for in-house work.

    Ericsson said the deal, to be signed before the end of the second quarter, is designed to help it return to profitability sometime this year amid a shrinking market.


    The two deals will come as a blow to IBM, EDS and other computer-services rivals, including Computer Sciences Corp. CSC.N , Accenture Ltd. ACN.N and Affiliated Computer Services Inc. ACS.N .

    Those companies are aggressively competing for large services contracts amid a harsh crackdown on technology spending by corporate customers.

    Hewlett-Packard has not traditionally been a big player in the services sector. But when it acquired Compaq Computer in May 2002, its services division doubled in size, said Ann Livermore, executive vice president of the unit.

    The group, which has 65,000 employees, netted its first big services deal last September, when it won a $1.5 billion contract with Canadian Imperial Bank of Commerce.

    For 2002, HP's services business represented nearly 17 percent of the computer maker's total revenue of $72 billion. Livermore said its outsourcing business, where it takes over the technology operations of companies like P&G and Ericsson, grew 14 percent in the fiscal first quarter ended in January.

    "These deals position us as the alternative to IBM and really show that IBM is beatable," Livermore told Reuters in an interview. She said Hewlett-Packard used to be ranked seventh or eighth in the line-up of top services firms.

    "Now we're number three and gaining (market) share," she said, noting that IBM and EDS are ranked first and second.

    IBM declined to comment.

    Bruce Caldwell, an analyst with industry research firm Gartner Group, said Hewlett-Packard was the third-largest services company in terms of overall revenues, but when it came to outsourcing deals IBM was still the clear winner with 14.4 percent of the market. HP ranks fifth with a 1.2 percent market share.

    "So they've got a ways to go to catch up," he said, adding that HP needs to make a decent profits from the two deals in the short term, "or it could be in trouble."

    Shares of Hewlett-Packard closed down 27 cents, or 1.73 percent, at $15.30 on the New York Stock Exchange.
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