HP-EDS shrinks after mega-merger

HP-EDS shrinks after mega-merger

Hewlett-Packard's New Zealand revenues increased by only 51 per cent to $816.2 million following its assimilation of the local arm of information technology services giant EDS while its losses widened by $1.5m to $10.3m.

The company's results for the year to the end of October give the first insight into how New Zealand's biggest computer firm has performed since the merger, which was the largest in the country's IT industry.

They show a 18.5 per cent revenue drop for the combined businesses over the past two years.

As independent subsidiaries, HP and EDS between them racked up revenues of $1b and a profit of $45.8m in their 2008 financial years.

HP New Zealand's wage bill for the year to October was $167.3m. That compared with a bill of $205.7m for the two constituent businesses in 2008, when the two companies were believed to have employed about 2900 staff.

The company declines to state employee numbers, but the wage data suggests it may have shed about 450 jobs, about twice the 7.5 per cent cuts slated in 2009 as its share of a global efficiency drive.

HP's information technology services business and staff numbers are set to shrink again this year as Telecom brings information technology work that it originally outsourced to EDS in a $1.5b deal in 1999 back in-house.

Telecom intends to hire about 300 information technology workers, many of whom it expects will be former HP contractors.

HP's United States parent agreed to buy EDS in August 2008 for US$13.9b (NZ$18b) but the merger of their New Zealand subsidiaries was not consummated until November 2009.

HP New Zealand's 2010 accounts, posted with the Companies Office, show HP paid $363.5m for EDS New Zealand, which it did with the aid of a $187m loan from its US parent.

That is due to be paid back by 2014 with 8 per cent annual interest. The transaction left HP in negative equity to the tune of $92.9m.

Most of HP's business before the merger was in supplying computer hardware such as servers and printers, though it also had a services arm which went head-to-head with EDS for a $590m seven-year outsourcing contract with Fonterra, won by EDS in 2004.

Fonterra, too, has reduced its reliance on the merged business. It partly unwound the outsourcing deal in 2009, saying the era of all-encompassing outsourcing deals was over. It has since hired Indian company HCL to develop and maintain much of its software.

EDS was the largest supplier of IT services to the New Zealand government before the merger, but HP's ability to sustain past revenue streams may be threatened by a move away from legacy systems and toward shared services and cloud computing.

An HP spokeswoman said it was well placed to meet the demands of the shift and "only saw opportunities ahead as we enable clients to achieve the cost savings they are looking for through cloud-based services."

The company announced last month that it would invest $60m in a state-of-the-art datacentre in the Waikato town of Tuakau. The spokeswoman said construction would start by the end of June. The centre is due to open in March next year.

HP said it had updated its products to help customers cope with a huge increase in electronic records and "the legislative complexity arising from a global business 

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