Hewlett-Packard's ( HPQ - Get Report) EDS division has clinched a $111 million contract with the Department of Defense (DoD) that could eventually support the U.S. military's ambitious cloud-computing efforts. Under the terms of the deal, EDS will perform security readiness reviews for the Defense Information Systems Agency (DISA), which provides technology infrastructure such as data storage and systems management to the various parts of the DoD. Earlier this year, DISA signed a deal with H-P to build out its cloud-computing architecture, which is now likely to come under the scrutiny of EDS' security reviews. Dubbed the Rapid Access Computing Environment (RACE), the cloud infrastructure allocates server and storage resources to the agency's clients as they are needed. RACE is accessed via a Web portal, and has been heralded as a major rubber stamp for the cloud-computing model. Research firm Gartner has already predicted that cloud computing could prove as influential as e-commerce, although relatively few organizations have opened up on their plans to use cloud technology. In a statement released Monday, EDS confirmed it will work with DISA officials to conduct security reviews on DoD networks, databases, systems and applications. The services giant will also evaluate DoD security policies, which could further boost the department's cloud strategy.
With a number of companies, including H-P, Microsoft ( MSFT - Get Report), IBM ( IBM - Get Report) and Google ( GOOG - Get Report) championing cloud computing, DISA's RACE initiative is being closely watched as a potential benchmark for the technology. New IT projects, however, inevitably require a major security rethink, according to Jeremy Potter, senior analyst at government research specialist Input.
"It's really a two-fold battle for DISA," he told TheStreet.com. "Security is at the front of their mind all the time, but it has been even more important lately because of all the things they are doing with new technology." Security has already been identified as one of the key barriers in the way of cloud deployments. In its 2008 security report, released Monday, networking giant Cisco ( CSCO - Get Report) identified cloud computing and mobile devices, as two of the biggest challenges facing security professionals. "The edge of the network is expanding rapidly, and the increasing number of devices and applications in use can make the expanding network more susceptible to new threats," it said, in a statement. The DoD has a 13-year relationship with EDS, although specifics of the $111 million contract have not yet been revealed. "This contract builds on a long-standing relationship between EDS and the agency," said Dennis Stolkey, senior vice president of U.S. public sector business at EDS, in a statement Monday. "By providing security readiness reviews, we will help DISA to counter security threats." The DISA contract also provides some hints as to H-P's long-term plans for EDS, which it bought for $13.9 million earlier this year. By layering specialized services on top of its existing technology contracts, H-P certainly seems to be laying the foundations for its broader EDS strategy. The technology firm has also spent the last few months integrating the services specialist into its business.
During its recent fourth quarter, H-P reduced EDS headcount by 2,300 people, and also expects to shave $1 billion off its expenses through its ongoing integration of the services giant. "We are encouraged with the early positive integration of EDS," wrote Jayson Noland, an analyst at R.W. Baird, in a note released last month. Noland also pointed to H-P's recent quarterly conference call, highlighting EDS' role in the tech firm's long-term performance. "
H-P management noted that approximately one-third of its revenues and over 50% of operating profits are recurring (which will likely increase as EDS is integrated), which gives us confidence in F'09 targets," he wrote. Analysts expect H-P to earn revenue of $128.37 billion in fiscal 2009. H-P shares slipped $1.07, or 3%, to $34.82, Monday, while the Nasdaq Composite Index dipped 2.1%.