Financial Analysis

Computer Services & IT Consulting
Industry Outlook
May 19, 2011
Analysts

CSC, ACN, IBM - HPQs Commentary On IT Services
Conclusion: Given the stock price decline chase HPs earnings release, the Street seemed surprised by the magnitude of the companys service revenue miss as well as its state need to reinvest in its operate business. We continue to attribute the companys under-performance in services to various issues, including managements doubtful strategy to expand services footprint as well as its weak globose words network capability. In our view, HP may be forced to make an acquisition in the IT Services outer space in order to reinvigorate its services business. Despite many of the issues/concerns we have with Neutral-rated CSCs model and fundamentals, a CSC/HPQ combination could help affirm HPs ambitions in IT Services. While HPs stock price looks inexpensive compared to other titanic cap tech peers, we prefer Outperform-rated Accenture and IBM as large cap, services plays. Both companies are well positioned to benefit from current improvements IT spending budgets.
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Moshe Katri (646) 562-1327 moshe.katri@cowen.com Avishai Kantor (646) 562-1313 avishai.kantor@cowen.



com

As part of its ongoing effort to take over IBMs successful services growth strategy, HP made 3 poor strategic moves. These were: bidding/winning low-margin, non-profitable BPO deals, the acquisition of explosive detection system and under- enthronement in building a massive global delivery capability. The need to transform HP services business. Mgmt highlighted an ambitious investment initiative, intended to transition its services revenues towards high margin offerings. displacement strategy may force HP to shop for other services vendor. CSC could be seen as an interesting candidate disposed its exposure to consulting, SI and government IT. Cowens IT Services team is hosting an Investor luncheon with IBMs GBS executive on June 2nd, NYC.

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