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Over the last 18 months, HP Services (HPS) was challenged not only the weaker economic environment, but also by its efforts to integrate EDS. With a large outsourcing presence, a significant portion of HPS’ revenue stream is backlog-driven. TBR believes HPS took a conservative approach to bidding on new deals during the first 12 months of the integration, which resulted in a hit to the backlog. However, HPS is emerging from the integration and weak economic environment with significant improvements in profitability and signings, which should drive a strong second half of 2010 for both the top and bottom line. .

Improvements to HPS’ profitability through efforts such as headcount rationalization and overhead reductions will allow to HPS to be more competitive in pricing deals. While we don’t expect HPS to buy market share, the combination of realized cost savings and ongoing cost initiatives will expand the pool of deals HPS can bid on, while preserving profit margins. At the same time, a portion of the cost savings is being reinvested to continue the expansion of the enterprise sales force and account coverage, which will also improve HPS’ competitiveness.
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