CHICAGO, May 19, 2008 (BUSINESS WIRE) -- Zacks.com releases the latest Analyst Interview. Today's interview
is with senior analyst Steve Biggs, who discusses EDS (NYSE: EDS), IBM
(NYSE: IBM), Hewlett-Packard (NYSE: HPQ), Yahoo! (Nasdaq: YHOO) and
3Com (Nasdaq: COMS).

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Does Hewlett-Packard's buying out of EDS have any immediate impact
on the tech sector overall, or does it mostly just make HP a bigger
competitor versus IBM?

With the addition of EDS (NYSE: EDS), HP will have triple the size
of its services business and become a much closer competitor to IBM
(NYSE: IBM). We had a Sell rating on EDS prior to the announcement of
HP's acquisition due to declining contract signings, which don't bode
well for future results.

In fact, I have been somewhat negative on most of the IT services
industry. I believe large scale outsourcing, such as what EDS and IBM
do, is on the decline with enterprises choosing to bring more IT
infrastructure management back in-house and outsource to smaller
specialty providers that focus on certain aspects of the business,
such as account statements, human resources, etc.

Given my view on EDS, I believe this could be a major disruption
for Hewlett-Packard (NYSE: HPQ) as they are battling a deteriorating
top-line. HP believes that they can take out $1 billion in expenses,
so profitability may be able to meet expectations, although this will
take time. CEO Mark Hurd is known for organizational skills and his
ability to cut costs, which helped HP realize benefits from the Compaq
acquisition.

EDS is also a partner of Opsware, which HP acquired last year, and
had tried to buy the company in the past. My belief is that over the
next year or so, investors will look at likely revenue disappointments
which will likely hurt the shares. Five years down the road, we might
be able to look at this acquisition and see how it helped HP's
competitive position, much like the Compaq acquisition.

How has The Street reacted to the news in the couple days since
this announcement?

As expected, EDS was up based on the cash value of HP's offer and
HP was down due to concerns over risks associated with the
acquisition. The increased merger and acquisition activity we have
seen over the past few quarters is probably a good sign for technology
stocks in general, as acquirers perceive value in these companies. A
number of companies in my universe have been acquired or have agreed
to acquisitions over the past months. The majority of acquisition
targets have been poorly performing companies that are near long-term
lows in market capitalization, such as Yahoo! (Nasdaq: YHOO) and 3Com
(Nasdaq: COMS), meaning the acquirer (or hopeful) acquirer must have
confidence in the business environment going forward.

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