After Buying EDS, Will HP Lose Focus? - Page 2

Page 2 of 2

MphasiS delivers global infrastructure technology outsourcing, applications service outsourcing and business process outsourcing in various fields, including manufacturing, healthcare, communications and government, all areas in which HP is a player, so it not only gets a well-known powerhouse in India, but also gets to extend its reach in other markets without restructuring its capabilities.

That reach will be furthered by MphasiS' presence worldwide: It has 29 offices in nine countries, with delivery centers in India, China, South America and Europe. However, HP may have to make some changes in its Indian operations: MphasiS' business partners include arch-rival IBM.

Competition To Heat Up

The HP-EDS deal has triggered speculation that IBM will look to acquire an Indian IT outsourcer or two. Both Infosys Technologies (NASDAQ:INFY) and Wipro (NYSE:WIT), with market caps of $25 billion and $19 billion, respectively, are possible targets, and, if IBM picks up either one, the result will be a megadeal that will dwarf the HP-EDS play.

The Indian companies won't be easy targets: Wipro and another major player, Satyam Computer Services (NASDAQ:SAY) are family-controlled; Tata Consultancy Services (NSE:TCS_A.NS) is majority-owned by the Tata family, which has interests in shipping, steel and other industries; and Infosys is controlled by a group of founders. All of them are cash-rich.

Last year, there were rumors that Infosys or Wipro were thinking of bidding for Cap Gemini (PARIS:CAPG5.PA), Europe's largest IT firm, but all three denied the rumors and nothing came of it.

Over in India, meanwhile, the talk is that the response to the HP-EDS merger might be a round of mergers and acquisitions among local IT services companies.

These firms have been very aggressive, and Gartner says their IT services revenue grew 38 percent in 2007, although they earned only 4.1 percent of revenue tracked. Pring said that, while the Indian firms look relatively small, they're "in the top five or 10 key areas where they've chosen to focus."

That kind of strength may bode well for HP's megadeal.