HP Gets Synstar Go-Ahead

This morning, the European Commission gave the green light to Hewlett-Packard Co.'s (NYSE: HPQ) $300 million acquisition of data center specialist Synstar, as the hardware firm attempts to strengthen its IT services arm (see HP Swoops on Synstar).

Bracknell, U.K.-based Synstar provides a broad range of data center services, including maintenance, help desk, and disaster recovery solutions -- key services in which HP lags behind IBM Global Services, Electronic Data Systems Corp. (EDS), and Computer Sciences Corp. (CSC) (NYSE: CSC).

Adam Lawson, software and computer services analyst at Teather & Greenwood Ltd., believes we will see more of this type of acquisition as the larger players go after slices of the lucrative IT services pie. You are going to see a lot more consolidation," he says. "Any business that has a decent managed services revenue stream is going to be a potential target."

In the U.K. alone, two such firms that are ripe for acquisition are public sector specialist ITNet and applications management firm Xansa, with services giants such as Cap Gemini and Atos Origin potential buyers, according to Lawson.

The analyst believes that the Synstar deal is a shrewd move. “This is a nice acquisition -- it makes a lot of sense. It has given HP a good footprint in the U.K. and added some mass to their European operations."Synstar has operations in eight countries across Europe, where its 1,500 customers include Lloyds TSB, Daimler Chrysler, and the U.K.’s Ministry of Defence.

Experts feel that HP has made its move at an opportune moment. In recent months, Synstar has overhauled its business model to focus on managed services. Rather than selling customers a single service maintenance contract, for example, Synstar is now bundling a broad range of services in an effort to improve its margins.

Lawson believes that HP will now be in a position to reap these benefits. "[Synstar] management have turned around a business that was under-performing three or four years ago. The company always had a fantastic customer base but never really exploited that.”

Most organizations now are keeping longer hold on their servers and mainframes and upgrading less often, which is bad for traditional big iron vendors such as HP. Through services, however, vendors can keep extracting revenues from their customers in between hardware sales. HP has already been active on this front; earlier this year the company announced a series of outsourcing deals worth $500 million with MCI (Nasdaq: WCOEQ, MCWEQ), Standard Register, and TD Bank Financial Group (see HP Lands Outsourcing Deals).

— James Rogers, Site Editor, Next-gen Data Center Forum0