On the face of it, Hewlett-Packard's effort to acquire Electronic Data Systems looks like a stroke of genius for HP CEO Mark Hurd.

With this single $13 billion deal, HP can bid to become nearly as big as IBM in the IT services and outsourcing business. This potentially gives HP the leverage to start selling its hardware and software into enterprise sites currently dominated by IBM.

It also has the potential of making HP's technology stack much stronger as an outsourcing platform, and that is bad news not only for IBM, but for Sun, Dell, EMC, Fujitsu and others that are competing in the server and storage business or in the utility computing business.

But the merger also raises an interesting question about EDS' business. EDS, founded by Ross Perot, a former top IBM sales executive, has long been known as a major reseller of IBM equipment along with the products of many other IT vendors, no doubt including HP's. But if HP succeeds in buying out EDS, it seems likely that EDS will turn its focus to reselling HP products, which could take a significant bite out of IBM's sales.

It will be interesting to see whether HP chooses to allow EDS to retain its independence as an IT outsourcer and systems integrator by giving it the freedom to prescribe the products that are the right fit at the best cost regardless of who makes them.
But that might be too much to expect of anyone shelling out $13 billion to buy a company to gain a stronger position in the IT services market.

Pulling off this mega-merger isn't going to be all beer and skittles for Mr. Hurd and his subordinates at HP. Integrating these two massive IT companies could end up giving its executives and board of directors as much indigestion as the Compaq Computer buyout did in 2002.

Like the Compaq deal, there could be a lot of second-guessing on Wall Street and in the boardroom if HP finds that it is taking a major hit in revenue and profits as it goes through the process of melding the two companies. It would be truly ironic if the Carly Fiorina experience comes home to roost for Hurd. But then Hurd has a reputation for being a far more shrewd and sagacious leader than Fiorina was.

But at this point it is an open question as to what degree HP will elect to consolidate the two companies. It's possible that HP could choose to operate EDS as an independent subsidiary in much the same way as General Motors did when it owned EDS from 1984 to 1996.

But it seems more likely that HP will want to absorb EDS into its corporate DNA to try to wring out as much synergy as possible. In any event, there is significant overlap between the two companies' businesses, particularly in the field of data center services, software application services, hardware integration, installation and maintenance.

Hurd will really get to demonstrate his management legerdemain if he can successfully weld the two companies together and rapidly get EDS contributing positively to HP's earnings.

While EDS has been profitable in recent quarters, it has offered early retirement to 11 percent of its work force to reduce costs and boost profitability. It has also moved to practice what it preaches by outsourcing jobs overseas. While EDS is a global IT services company, it has punctuated its emphasis on overseas outsourcing with the acquisition in June 2006 of MphasiS, an application development and business process outsourcing firm based in Bangalore, India.

During the nearly 12 years that GM owned EDS, it found the company's financial performance uneven at times. But the fact remains that in the end the acquisition proved to be quite a bonanza for GM because it spun off EDS at a market value of about $22 billion after paying $2.5 billion to acquire the company in 1984.

On a personal note, there is nothing like big news, such as this proposed HP-EDS merger, to help launch a new eWEEK blog. My news editor colleagues Jeff Burt and John Hazard will be joining me in this round robin blog, covering the hot news stories of the day on eWEEK. We look forward to receiving your comments in response to our efforts.