Big Blue to Meet Its Match in HP-EDS

SAN FRANCISCO -- The repercussions from the merger of Electronic Data Systems(EDS Quote) with Hewlett-Packard(HPQ Quote) will ripple broadly throughout the tech industry.

H-P announced Tuesday that it will buy the outsourcing services company for $13.9 billion.

The deal will be bad "for anyone that doesn't have H-P or IBM(IBM Quote) on their business card," said IDC analyst Bob Welch.

Even IBM, the leader in the global services and outsourcing business, will ultimately feel the pressure. Gartner puts the worldwide market for IT services in 2007 at $748 billion. With $54 billion in services revenue, IBM had 7.2% of the market. At $22 billion, EDS had 3%, while H-P had 2.3%.

And the merger could throw a wrench into EDS's Agility Alliance, a group of vendors that regularly coordinate to supply hardware, networking, software and services to EDS's outsourcing clients. The partnership has been very effective for EDS and its partners, Welch said.

In the short term, IBM and Accenture(ACN Quote) "are the standard" in global services outsourcing and will get a short-term edge in closing deals with potential customers who may be uncertain about EDS's ability to deliver services during the merger, Technology Business Research analyst Chris Foster said.

But eventually, the merger will mean more challenges for both IBM and Accenture, which had 2.8% of the market in 2007.

For IBM, the merger would create an aggressive, diversified competitor nearly on IBM's scale. IBM and EDS compete especially in the government sector. "There is now someone that is close to offering [IBM's] comprehensive offerings," Foster said.