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May 14, 2008
The Electronic Data Systems name and headquarters office will remain after the Plano-based company merges with Hewlett-Packard, but the likelihood of job cuts looms, the companies said Tuesday.
"We are continuing to streamline our work force at EDS. Obviously, there are obviously going to be some changes," EDS Chairman Ron Rittenmeyer told reporters on a conference call. EDS, under Rittenmeyer and his predecessor, Michael H. Jordan, has cut thousands of jobs in recent years and moved thousands more to lower-cost foreign countries.
"The overlap actually is not very extensive," Rittenmeyer said, and the merged company should be able to offer customers "a better mix" of services that should strengthen its competitive position with industry leader IBM. But he also said the merger "just gives us an opportunity to accelerate" cuts in overhead and restructuring of operations.
EDS employs about 7,200 people in North Texas, including about 800 in Tarrant County, and about 135,000 worldwide. About 45,000 of those work overseas.
Peter Bendor-Samuel, chief executive of the Everest Group in Dallas, said he expects HP to move slowly with any downsizing.
"You do not want to lose the talent base," Bendor-Samuel, whose company is a consultant to the data-processing industry, said of EDS' technical workers. "They're going to take a measured pace," he said, noting that administrative and support jobs in areas such as finance and human resources were the most likely targets of cuts.
In Tarrant County, many of EDS' employees work in offices in the CentrePort development south of Dallas/Fort Worth Airport, largely for airline-related customers, said spokeswoman Annabelle Baxter. They develop new applications to solve particular client needs, as well as help serve as "an extra set of hands" to operate clients' data centers and other operations, she said.
Bendor-Samuel said that's just the kind of business that HP lacks and should represent a real asset in the merger.
As for the EDS name, Bendor-Samuel said he expects it to experience the same fate as an earlier HP acquisition, Compaq Computer. When the two companies merged in 2002, HP said it would keep the Compaq brand. But within a year the name was disappearing from the company's lineup of business products, and today is available but not prevalent.
"You can have the EDS name, but HP is stronger," Bendor-Samuel said. Over two to five years, I can't see them keeping it," he said both of the EDS brand name and also its big headquarters in Plano, where the company moved in 1993.
Jess Scheer of Kennedy Information, a researcher to the consulting industry, also said he expected consolidation.
"They're talking about keeping that headquarters in Texas and the EDS brand. But they wouldn't be doing this deal if there weren't synergies" to be gained by combining services and eliminating overhead, he said.
Financial analysts quizzed HP Chairman Mark Hurd during a conference call over what they called EDS' higher costs and lower profit margins, and several questioned the purchase price of $13.9 billion in cash and assumed debt. HP's shares (ticker: HPQ) fell an additional 5.5 percent Tuesday to $44.27, giving it a nearly 10 percent loss in the two days since word of the deal surfaced.
"We wouldn't do the deal if we didn't think we had an opportunity to improve the operating profit level that EDS currently has," Hurd said.
In the year's first quarter, EDS's gross margin was 14 percent. HP's was 24 percent and IBM's big technology-services operation posted a 31 percent margin, according to Bloomberg News. EDS' revenues also have grown slowly, just 4 percent in 2007, or half the rate in 2006.
Scheer said EDS also offers HP a big position in information-technology consulting, especially in the government sector.
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