% fortune -ae paul murphy

HP acquires EDS

As I've noted elsewhere HP's takeover of Compaq destroyed essentially all of HP's pre-takeover value and left the Compaq organization operating as HP. Now they've announced their intention of taking over EDS.

On the good news side there won't be a culture clash in bringing these two together: this is a simple merger between two financially driven companies from Plano Texas both of which are focused on selling off-shore products and services to Americans.

On the bad news side, neither company seems to have realized that there's a major resurgence in American manufacturing going on, that customers are generally deeply dissatisfied with off-shored services, that exchange rates are working against them, and that Dell's profitability decline suggests that just putting stickers on bananas isn't going to cut it anymore.

Let me quote someone whose hatred of Sun nicely contradicts his prescription for success here - thus demonstrating that he can be an agenda driven dolt and right at the same time: Forbes technology editor fake Steve jobs, commenting on problems at Dell:

The rise of China means everyone can make PCs pretty much as cheaply as Dell does. And it's not just cheap manufacturing anymore. The real genius and power of China lies in its armies of low-cost and brilliant engineers. Seen a Lenovo box lately? Heck of a lot nicer than anything Dell is pooping out from its factory in Round Rock.

Bottom line is this: the only innovations worth making are the ones involving product ideas and product design. I mean, Duh. Right? It's pretty obvious. What's amazing to me is how few companies actually seem to realize it. To sustain an edge in any market you must make better products than your competitors, consistently, over and over and over again. Just making the same products as everyone else but taking a little friction out of the system can give you an advantage, but only a temporary one.

The other reason Dell won't rebound is that the company is yoked to Microsoft. Vista has hurt them tremendously. Don't doubt it. All of the PC makers know this and they are furious about it. But what can they do? They put their future in the hands of the Beastmaster. They figured they could deal with the Borg's evil nature; they didn't anticipate having to deal with the Borg's incompetence. You may remember that ten years ago people were saying Apple should cave in and become a Windows shop too. You know why we didn't? Because even ten years ago El Jobso recognized that Windows had become a hairball and foresaw the problems that the Borg was bound to have as the hairball got bigger and bigger and bigger. It was bound to collapse. It had to. It's like using a Volkswagen car kit to build a space shuttle.

Bottom line: HP's strategy here is about a decade out of date with respect to the current business climate and as completely contemptuous of shareholder interests as their Compaq adventure.

What's interesting about this disaster in the making, however, is that the optimism its executives are pretending to is belied by history and the market - both of which you'd expect them to be familiar with. On the history side, can you name an IT acquisition like this that worked out for the buyer's shareholders? Right, neither can I - and on the market side HP's subsequent price slide speaks for itself.

Paul Murphy wrote and published The Unix Guide to Defenestration. Murphy is a 25-year veteran of the I.T. consulting industry, specializing in Unix and Unix-related management issues.