HP / EDS Summary

Continuous change for employees can only be cause for disruption. Merging the DNA of the two organizations will be painful and the impact of the deal on EDS' 137,000 employees is uncertain. Rod Bourgeois, an analyst with Sanford C. Bernstein & Co., said he expects some EDS jobs to disappear as the companies combine work forces.

In a conference call with analysts Tuesday, Hurd, in California, and Rittenmeyer, who was in New York, repeatedly used the word "synergies" to describe the benefits the combined company would see as it cuts overlapping costs.

"In terms of job cuts, we are continuing to streamline our work force at EDS," Rittenmeyer said during the conference call. "We've been doing that for some time ... there are always job adjustments." He didn't explain exactly what he meant by streamlining, but EDS has been shifting more work to overseas locations around the globe as part of its Best Shore outsourcing services strategy. Only about 47,000 of the company's workers are located in the U.S. at this point.

In an interview with The Associated Press, Rittenmeyer said, "Employees who do a good job, who are good performers, don't have to worry about anything."

The CEO said the company is constantly evaluating employees and shedding underperformers.

HP investors, given the pain of the Compaq acquisition, are understandably skeptical - HP shares fell five per cent yesterday evening, while EDS's rose 27 per cent.

Ovum analyst Phil Codling said the combined company will face challenges in integration.

"On paper an HP-EDS combination looks workable. But in practice it could prove anything but," he said.

"Ultimately, whether IBM, Accenture, CSC and Capgemini need fear the outcome of this potential deal would rest on the success or otherwise of what would undoubtedly be a very ambitious corporate integration project."

HP has a total of about 172,000 employees. The two companies have a combined total of about 209,000 workers who are involved in their IT services businesses, which have combined annual revenues of $38 billion. EDS accounts for the majority of that total, having reported $22 billion in revenue last year.

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