Big Blue to Meet Its Match in HP-EDS

Storage hardware and software vendor EMC may also be faced with more competition. The company may see some EDS equipment sales displaced by H-P, but will stand up to the competition.

"EMC in the short term has enough best of breed and differentiation in their systems to stand alone," Foster said. But it should consider acquiring a provider of hardware integration services, he added.

EDS's Agility Alliance hardware members -- Cisco(CSCO Quote - Cramer on CSCO - Stock Picks), EMC(EMC Quote - Cramer on EMC - Stock Picks), Sun Microsystems(JAVA Quote - Cramer on JAVA - Stock Picks) and Xerox(XRX Quote - Cramer on XRX - Stock Picks) -- may also feel left out in the cold if EDS customers are steered toward H-P equipment.

But the hardware vendor with the most to lose is former Agility partner Dell(DELL Quote - Cramer on DELL - Stock Picks), which still counts EDS as a chief customer.

Dell left the alliance in June 2007 "after customers appeared to be focusing more on software and networks than on PCs," a spokeswoman said in an email.

H-P CEO Mark Hurd said on a conference call Tuesday that the alliance would continue and his company will join it. EDS Chairman and CEO Ron Rittenmeyer suggested that H-P will have the edge: "The H-P process ... will be to play a large role in that with us."

The company must balance between pushing the H-P logo and fostering the successful alliance, Welch said. Disintegration of the partnership "would not be an effective strategy."

If H-P continues to let competitors play in the Agility sandbox, it would signify a broader industry trend toward cooperative competition, says Foster.

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