HP CEO Meg Whitman must have heaved a giant sigh of relief on Thursday. That’s when word came that her biggest, most troubled business unit would not be losing its biggest federal customer.
The U.S. Navy opted to renew its outsourcing contract with HP, valued at over $3.5 billion for the next five years. But HP has to share that booty with a collection of other outsourcers: AT&T, IBM, Lockheed Martin and Northrop Grumman Systems.
The renewal of the Navy contract is hugely important to HP’s Enterprises Services unit, which is taking the brunt of HP’s multi-year layoff, sources tell us. HP is in the process of cutting 29,000 jobs.
HP ES was born from HP’s 2008 $13.9 billion acquisition of EDS. But the unit has faced ongoing problems for years, with constant management turnover, shrinking revenues and layoffs. In August, HP wrote-off $8 billion in goodwill from the unit.
The Navy had originally hired EDS as its outsourcer and HP inherited the contract when it bought EDS. The Navy renewed its contract with HP in 2010, but soon after signing the deal, decided it wanted to end the relationship because it didn’t want to rely on a single vendor, Wired reported at the time.
So HP had to put together a coalition of outsourcers and bid against a similar coalition led by CSC.
That means that, even though the win is good for HP’s reputation, the contract isn’t nearly as lucrative as it once was. HP’s take will fall by about 37 per cent, Bloomberg Industries analyst Brian Friel told Bloomberg.
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