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HP narrows focus for mega services deals
Is it 'transformational'?
Hewlett Packard Co is seeking to strike more $1bn-plus services contracts but has said it is increasingly prepared to walk away from some deals,writes Joe Fay
The company is prepared to pass up on some of the industry's largest transactions even as the number of such mega services contracts begins to shrink, and the average size of services agreements overall decreases.
Ann Livermore, executive vice president for HP Services, told its analyst conference in San Francisco yesterday that its managed services unit was upping its focus on $1bn-plus contracts but only wanted to engage in such deals if it was able to do "something transformational" for the client. "We've got to do more than just reduce costs," she said.
Speaking to ComputerWire at the conference, Livermore said that in any given year, perhaps 25 such deals presented themselves. "We'll pursue five to ten."
Livermore described the bidding process for major services deals as akin to due diligence during a company merger. Presumably this works both ways. Electronic Data Systems' recent problems following the financial troubles of key clients and high startup costs with its US Navy contract have no doubt made other providers more cautious about what contracts they take on.
Despite HP's focus on a smaller number of the biggest deals, Livermore said the average size of services deals overall had shrunk. She said companies may outsource a particular application, or operations in a particular geography. HP would still aggressively chase such business, she said. Such deals will often act as a gateway to more business with customers.
Hewlett Packard's efforts to expand its services business were also receiving a boost from the amount of talent on the market as rival players trim their ranks, she said. The company was also going after talent in rival services outfits, said Livermore, and was getting an 80% acceptance rate to offers it was making.
Such workers were tempted by the ability to "build up a business" she said. At the same time, the shedding of staff by rivals could result in increased competition, she said, "When there's over-supply [of consultants] it doesn't just go away. It becomes independent consultants."
Even as the company sucks up talent from rivals, Livermore said it was looking to aggressively drive down its costs by "moving everything we can offshore."
Livermore also said the company was making a conscious decision to decrease the amount of third party product it sold. However, this did not mean it would push HP product where third party products were more appropriate. Rather, she said, the company would not resell third party products itself, as passing such sales through its books obscured the performance of its own services operation.
While HP's Enterprise and Personal Systems business are still clawing their way back to profitability, its services business, along its printing and imaging business, is generating profits. In the fourth quarter HP Services made operating profit of $381m on sales of $3.1bn.