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HP: Synergy with EDS Provides Promising Outlook
By
Jul 20, 2009 - 2:02:19 PM

www.hp.com

Industry: Computers & Peripherals

Established: 1939

Headquarters: Palo Alto, CA

Pres., COB, CEO: Mark Hurd

Employees: 321,000

Ownership: Publicly traded on the New York Stock Exchange (HPQ)

Institutional Shareholders

2,667 institutions own 75.8% of the 2.39 billion common shares outstanding; more than average institutional ownership of the Computer Hardware Industry (72.2%), and higher than average for S&P 500 (69.3%)

Products & Services:

Business Intelligence Solutions for utilities:

· Customer relationship management

· Customer care

· Marketing analytics

· Regulatory compliance

· Performance and financial reporting

· Financial and operational systems reconciliation

· Vendor acquisition reporting and reconciliation

· Smart meter data

· Management

· Demand forecasting

· Tariff and usage optimization

EDS unit - Agility Alliance partners

· Cisco – EDS and Cisco deliver data center virtualization, intelligent networks, standardized networks and other differentiated technology solutions to substantially reduce capital and operating expenses

· EMC – EMC is EDS’ preferred partner for Information Lifecycle Management solutions, including end-to-end information storage and enterprise content management bringing information to life

· Microsoft – EDS and Microsoft are developing joint solutions to deliver the next generation of applications, workplace and mobility solutions – providing improved efficiency, competitiveness and security

· Oracle – Oracle and EDS accelerate and deliver best-in-class applications that advance modernization efforts by tapping the power of Oracle’s bundled application and database technologies for the Java platform

· SAP – SAP provides end-to-end enterprise applications services and is EDS’ preferred partner for leveraged HR, finance & accounting, and procurement BPO with increased stability, flexibility and innovation

· Sun – EDS and Sun provide virtualization technologies and utility computing solutions that help reduce total cost of ownership and increase business agility

· Xerox – Xerox provides the standard printer hardware and output and document management services for the EDS Agile Enterprise Platform, and are working together to develop and take to market high-end print, office, imaging and document management solutions

In the Field

· Five-year technology services deal to manage desktops, voice and data networks for American Express - 7/2009

· HP & Alcatel-Lucent form 10-year global alliance to help customers leverage convergence of telecommunication and IT - 6/09

· EDS unit and Microsoft agree to market, integrate and deliver the Microsoft® Business Productivity Online Suite for enterprise customers; expect to deploy services to more than 5 million users - 4/09

· HP/EDS $1 billion agreement with Aviva to manage two data centers in England. - 3/2009

Read more

EDS Advanced Meter Infrastructure Solution

Data center wars: HP preps its server sortie

HP and Microsoft Expand Alliance in Unified Communications and Collaboration

The EDS Agility Alliance

In Brief: Hewlett Packard

One of the world’s largest IT companies, Hewlett-Packard (HP) provides computer and imaging solutions for consumers and businesses. It provides enterprise software to a variety of industries -- including the utility sector.

HP has several initiatives relevant to the Smart Grid, including:

EDS utility outsourcing, including metering services
Cyber-security, including utility-specific expertise
The Green Grid alliance, which focuses on reducing power requirements of large data centers

The company’s strategic acquisition of EDS in 2008 is providing momentum and promise to future growth. It is part of the Technology Solutions Group (TSG) which HP formed in 2004 to offer high-end hardware, software, and services in one division to better compete.

Strengths

EDS brings a wealth of experience to HP, having introduced information technology outsourcing solutions over 46 years ago. The EDS Agile Enterprise Platform provides fully managed services that optimize applications and infrastructure. With these optimized processes, fixed IT costs can become variable costs, freeing up business resources for other purposes.

EDS’s Advanced Meter Infrastructure Solution provides two-way communication with commercial, industrial, and residential meters. Infrastructure and data storage technologies are built in partnerships with EMC, Sun Microsystems and Oracle. The solutions integrate data collected from the meters into crucial business systems such as billing, customer service, field service, and energy-demand management. Scalable data management systems run on multiple architectures, including Windows, Solaris, UNIX and Linux. The AMI Solution supports technology from any metering hardware or software provider, safeguarding the system for the long-term since the technology will continue to change. It works with multiple communications paths - public and private radio frequencies, power line and broadband over power line (BPL), paging and cellular networks, and satellite technology. Among its utility alliance partners are two well-established providers of smart meters, Itron and eMeter.

The HP Trusted Compliance Solution for Energy (TCS-e) helps power and energy companies mitigate security risk by providing robust protection against threats from computer hackers. The automation technology in HP TCS-e also helps energy companies reduce the business risks and costs associated with noncompliance, such as regulatory audits, sanctions, and hefty fines. The solution combines HP compliance automation software and storage technology with event data management security analysis software from SenSage, Inc. It also includes the HP Atalla (FIPS) 140-2 Level 4-certified hardware-based security subsystem, which provides cryptographic operations – privacy, integrity, authentication and non-repudiation – and hosts the security-sensitive portions of the TCS-e applications. It was designed specifically to meet the cyber-security, compliance and audit requirements of the North American Electric Reliability Corporation Critical Information Protection (NERC-CIP) 002-009 reliability standards mandate.

In partnership with Microsoft, EDS is the first Business Productivity Online Suite reseller to deliver online services of highly secure and reliable cloud-based productivity solutions to enterprise customers who want to deliver IT innovation to improve total cost of ownership. These services minimize infrastructure investments and can be deployed rapidly. The end-to-end communications and collaboration solutions include:

· Software, services, and core technology solutions delivery

· Tightly integrated solutions that reduce total cost of ownership, in a mix of on-premise or hosted solutions

· Using HP Business Technology Optimization (BTO) software, infrastructure platforms and devices operate across the enterprise on PCs, smartphones, networks, servers, and storage. The end-to-end business productivity solutions and modular design of the HP/Microsoft solution allow consolidation of existing servers, storage, and platform environments, while providing continuity of service

The merger of ProCurve into the Technology Solutions Group gives solution providers an expanded lineup in HP’s maturing networking group. The move places ProCurve solidly in the large enterprise space and makes it part of an end-to-end enterprise solution instead of just an alternative to competing vendors.

HP has strong cash flow and trades at a 50% P/E discount to the broad market, presenting good investment potential. HP is trading below historical norms on measures such as price/earnings, price/sales and price/cash flow, and trades at a discount to peer average multiples. The company had cost-cutting plans in place long before the economy began to suffer, lessening the impact of the current recession on earnings and cash flow relative to what was experienced in 2001-2002.

Challenges

Hewlett-Packard faces powerful competition from IBM and Accenture in the best-performing segment HP has right now – building enterprise-wide systems.

The current economic environment is impacting most notably HP's operations in the PC and server businesses. Sales and operating income are down in all divisions within the company with the exception of services due to the EDS acquisition.

The appreciation of the U.S. dollar has negatively impacted the company's earnings because a high percentage of HP’s sales come from outside the U.S. Almost 69% of FY 08 revenues came from non-U.S. business. The impact is likely to par revenues for FY 09 by 6-7%. Net earnings for the year are expected to be 4-5% lower than the prior fiscal year.

HP has been fined in a patent infringement case with Cornell University. The company is appealing this judgment, though it reserved $0.02 per share during the second quarter for potential legal costs.

Our View

HP-EDS is a leading provider of solutions for upgrading legacy systems to an enterprise platform and integrating new systems, like smart meters, and linking them with control centers and back office operations. Forty utilities are currently under contract with the company, representing good adoption of HP’s solutions.

With almost all divisions underperforming during this difficult recession, effective cost cutting has eased some of the pain for HP. Green shoots are emerging as outsourcing businesses tend to perform well during tough times. Customers are responding very positively, and there have been multiple large signings since the beginning of the year. The new business pipeline has grown by double digits. Infrastructure technology outsourcing, application outsourcing and business process outsourcing grew a combined 257% as a result of the EDS acquisition. EDS appears to be giving HP an ability to satisfy large service accounts through the enhancement of its services operations.

The strength of its award-winning EDS Agility Alliance collaboration is underscored by over 5,000 professionals assigned to each of its alliances with Microsoft, SAP, and Oracle. A coalition of partnerships, the Alliance provides customers a multi-sourcing approach that delivers applications, business processes and IT solutions to meet growth, productivity and innovation requirements with services platforms and technology-based services that provide tangible results.

Anthony Erickson, Global Utilities Industry leader for EDS, led IBM’s energy and utilities sales for its Global Business Services division. His responsibilities included managing a team that sold and serviced IBM’s industry business solutions. He participated in developing IBM’s go-to-market strategy for solutions supporting the Intelligent Utility Network, Enterprise Asset Management, Corporate Support Services and Customer Operations Transformation. His experience is no doubt an asset to Hewlett Packard as a leader in enterprise-wide solutions.

The prospects look quite optimistic for HP to continue to lead and grow revenues in its new synergy with EDS. Beyond this economic trough, the future appears very bright.

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