HP and EDS merge. Is it about the cloud?

If you’ve been following trends, the next big thing is utility computing in the cloud. It appears HP is interested in improving their cloud position, at least in the enterprise services market. We predict infrastructure on demand from HP is on the horizon, with more cloud based services to come.

 HP said the deal, which has been unanimously approved by the HP and EDS boards of directors, will close in the second half of the year. HP expects that the addition of EDS will more than double HP’s services revenue of $16.6 billion in fiscal 2007. At the end of 2007, HP and EDS had a collective services revenue of more than $38 billion and 210,000 employees, doing business in more than 80 countries, HP said. (Cnet)

Typically, such a major deal means two things: either that the buyer has some issues with his current business or he wants to make a big bet on the future. In case of HP CEO Mark Hurd, it might be a bit of both. There is only so much market share they can carve out when it comes to printers and computers. More importantly, HP seems to be realizing that the future is about on-demand infrastructure. EDS brings to the table about 100 data centers around the planet.

Not everyone agrees with HP’s decision to buy EDS and get big fast. Forrester analyst Paul Roehrig is in that camp. Vinnie “Deal Architect” Mirchandani is someone I immensely respect and he brings up a very valid point when he writes:

But EDS is not Accenture or PwC (which IBM acquired) or TCS or Infosys. Its major strength is still in infrastructure outsourcing (though it has been growing its application and BPO capabilities nicely). HP’s outsourcing is similarly more skewed towards infrastructure. So, it is a scale play. But the timing is risky because infrastructure outsourcing is being challenged by data center consolidations, a secular decline in processing, storage and network charges and emergence of utility and cloud computing models. (GigaOm)