In the late 1990s I worked for a Midwestern manufacturer. We ran a very small IT shop for the size of our corporation (8 people for a company grossing a third of a billion dollars annually, across 10 locations), and all of us in IT were expected to wear many hats. I was a programmer, analyst and project manager when I wasn't network administrator and tech support. From our corporate office, I was directly responsible for five factories around the Great Lakes area, and I also helped out the MIS staff at our factory just down the road.

A year before, I had responded to a Friday plant disaster that left inventory and manufacturing untouched but destroyed the office space and all computers. Thanks to spare equipment and offsite backup tapes, our Monday morning shipments went out on time, saving the company hundreds of thousands of dollars. This event opened the purse strings a bit, and I was allowed to purchase a backup server to use in case one of the other factories had a similar disaster.

Like many companies at that time, we decided to jump on the ERP bandwagon. All the upper-level execs were involved, as we were going to avoid all of the mistakes that other companies were making, and have a cost-effective and pain-free implementation. I was not involved in the planning, being too low on the totem pole. For the next several months, the bigwigs confabbed while I set about improving our network infrastructure and documenting in-house applications. I couldn't work on any new projects, as we didn't know which ERP we would be getting and what would be made obsolete. At one point, the VP of Finance asked the CIO why I still worked there. To his credit, my boss said that although I was not going to be involved in the ERP planning, I would be instrumental in the installation and training. I, of course, brushed up the r?sum? and prepared for the inevitable.

Read more of this tale at InfoWorld's Off the Record blog

Computer Sciences (CSC) has agreed to pay $1.37 million to settle allegations that it received kickbacks on technology contracts with U.S. government agencies, part of an alleged scheme involving millions of dollars and dozens of IT vendors and systems integrators.

The settlement, announced by the U.S. Department of Justice Tuesday, stems from a 2004 lawsuit filed in Arkansas by whistleblowers who worked at Accenture and PricewaterhouseCoopers. In August, IBM agreed to pay just under $3 million and PricewaterhouseCoopers agreed to pay $2.3 million to settle similar complaints.

The DOJ joined the lawsuits in April 2007. The DOJ investigation into the alleged kickbacks continues, the agency said.

CSC confirmed the settlement, but disputed the allegations. "We emphatically deny that CSC engaged in any false claims or other wrongdoing in association with this case," the company said.

Whistleblowers Norman Rille and Neal Roberts filed lawsuits against Hewlett-Packard, Sun Microsystems, and Accenture in U.S. District Court for the Eastern District of Arkansas in September 2004. The men alleged that the three companies, along with more than three dozen other IT vendors and system integrators, engaged in a long-term kickbacks scheme in which the companies created alliance relationships with dozens of other vendors, giving each other discounts or rebates on products or work for government contracts.

The companies did not pass the rebates on to their government clients, according to the complaints.

Several of the defendants have responded to the complaints by saying their contracting actions were legal.

CSC "knowingly" solicited or received payments of money and other things of value from other companies in its global alliance, the DOJ said. The benefits "amount to kickbacks and undisclosed conflict-of-interest relationships," the DOJ said.

HP said Tuesday morning that it has signed a deal to acquire IT outsourcer EDS for $13.9 billion, or $25 per share.

The deal has been approved by both companies' boards of directors, and is expected to close in the second half of this year.

HP said it will more than double its services revenue. It plans to fold its outsourcing business into a new unit to be called "EDS -- an HP company," which will be based in Plano, Texas, where EDS has its headquarters.

"This is about us putting our outsourcing business into EDS," said HP Chairman and CEO Mark Hurd, in a conference call with analysts.

[ For complete coverage of the EDS acquisition and its ramifications for HP, see InfoWorld's special report. ]

The EDS division will be led by EDS Chairman, President and Chief Executive Officer Ronald A. Rittenmeyer, who will report directly to Hurd.

That will take control of some of HP's services activities away from Ann Livermore, executive vice president of HP's Technology Solutions Group (TSG). Services, including outsourcing, contribute almost half of that group's revenue: the other half comes from storage, servers and software. Livermore "has got a big job," said Hurd, adding that much of HP's services activity will remain with TSG.

Rittenmeyer's appointment raised at least one analyst's eyebrows.

"It's interesting that he has been put into this spot, as there were questions about how he was going since taking over as CEO at EDS," said Gartner analyst Ben Pring.

The deal will greatly expand HP's IT services business and catapult it to the number two spot close behind IBM, whose Global Technology Services division has long been a strong profit generator for the company.

"I see [the acquisition] as an attempt by HP to really go head to head with IBM in a much more meaningful way, especially in technology services and IT outsourcing," Dana Stiffler, research director with AMR Research, said Monday, while the two companies were still in talks.

The worldwide market for IT services was worth $748 billion in 2007, an increase of 10.5 percent from the year before, according to recent figures from Gartner. IBM led the market with about $54 billion in revenue, followed by EDS with $22 billion. HP was in fifth place with revenue of $17 billion, behind Accenture and Fujitsu.

Buying a services business in a faltering economy is a good investment, because that's when customers are keenest to cut their costs by outsourcing, said Hurd.

"Services is countercyclical, the tougher things get, the better services does," he said.

Rittenmeyer said that EDS has a "strong pipeline" of contracts ahead of it.

There is little overlap in the channels by which the two companies reach customers, said Hurd, since HP's services business primarily targets small and medium-size businesses. Nevertheless, Hurd sees other areas where the companies can realize "significant synergies" and reduce operational costs.

The pending deal should not adversely impact HP partners who are authorized to sell services for its products, Hurd insisted.

"Its good for HP, so its going to be good for our channel partners," Hurd said. "If you look at our outsourcing business today, we try to make it very complementary to our partners."

EDS will remain hardware-agnostic following the acquisition despite the presence of HPs hardware business, Hurd said.

"While this is a popular question because of our product portfolio, in the services industry you have to work with all kinds of [products]," he said.

The acquisition will enable EDS to begin offering lower-priced services to customers, Hurd said.

"Theres a tremendous leverage you get from scale," he said. "Were spreading our cost structure across a much larger revenue base. We expect to bring that capability to EDS. With many of the functions they do today, we can help them take advantage of that scale."

Buying EDS will grow HP's services business and allow it to offer a wider range of services to attract large business customers. EDS is strong in infrastructure management services and also custom application services, where it helps companies to design, integrate and manage applications.

EDS is less strong in providing services for packaged applications, however, and the acquisition will not give HP a big lift in the type of business consulting services delivered to line managers and business executives either, Stiffler said Monday.

HP has been keen to expand its services business for years, and EDS is not its first attempt to do so. In 2000 HP dropped plans to acquire PricewaterhouseCoopers Consulting, which was ultimately scooped up by IBM two years later, for $3.5 billion.

HP's services business generated only 16 percent of its total 2007 revenue of $104.3 billion, while IBM makes more than half of its annual revenue from services. The company increased its revenue estimate for fiscal year 2008 on Tuesday morning, saying it now expects revenue of between $114.2 billion and $114.4 billion, up from a previous estimate of $113.5 billion to $114 billion.

The company also reported preliminary results for its second fiscal quarter, ended April 30. It made revenue of $28.3 billion for the quarter, compared with $25.5 billion a year earlier. The figure beat estimates of analysts polled by Thomson Financial, who had expected $27.98 billion. HP also said estimated earnings per share for the quarter were $0.80, up from $0.65 one year earlier. Excluding acquisition related costs, EPS was $0.87, beating the analyst estimate of $0.84.

It expects to announce final results on May 20.

Buying EDS will give HP the muscle it needs to become a serious threat to IBM's services business, said Kathryn Hale, research vice president at Gartner, also speaking before the companies confirmed the deal. HP has the resources and the wherewithal to acquire EDS and improve its business results, she added.

EDS reported revenue of $22.1 billion for its fiscal year 2007, which was up only a fraction from 2006. Net income was $716 million, up from $470 million.

EDS and its subsidiaries employ about 137,000 people worldwide, around 90,000 of them overseas. About 45,000 of the overseas employees work in what EDS calls "best shore" countries, affording high service quality and low cost. EDS aims to boost the number of overseas workers in the "best shore" countries to around 55,000, said Rittenmeyer. HP ended its 2007 fiscal year with about 172,000 workers.

The $25 per share offer is a $6.14 premium above EDS' closing share price of $18.86 Friday. Rumors of the acquisition drove up EDS' share price to $24.13 by the close of trading Monday. Within two hours of trading Tuesday, EDS shares were at $24.45, up by $0.37, and HP shares were down by $2.95 to $43.88. The share price of buying companies often drops on the day an acquisition is announced, as traders calculate that big acquisitions usually have a dilutive effect on earnings, at least initially.

(Chris Kanaracus in Boston contributed to this report.)

On Tuesday, Microsoft released Service Pack 1 (SP1) for Office 2008 for Mac, designed to add stability, security, and performance enhancements to the suite of office applications. The update features suite-wide fixes, as well as improvements to the individual applications that make up Office.

Microsoft says the service pack will improve performance when you type text into a text box, shape, or chart element. A more-intelligent Remove Office tool will no longer search for copies of Office in a Time Machine backup, while another fix provides for proper layer positioning with inserted PSD files.

Office 2004 applications could quit unexpectedly when users tried to copy content into them from an Office 2008 program; Service Pack 1 fixes this bug.

Word 2008 changes: Improvements to the word-processing application include a set of new business card templates that work in Publishing Layout view. Among the fixes to Word, the Service Pack will properly apply the Customize workspace background setting in Publishing Layout view and Notebook Layout view to new documents; correctly apply font formatting changes to content when you use the Repeat command; and allow characters such as hyphens to display correctly when the font formatting is changed to Small Caps. The update also fixes a number of problems with Notebook Layout View.

Excel 2008 changes: Service Pack 1 restores chart formatting options available in previous versions of Office and improves the spreadsheet program's ability to alert you to potential compatibility issues when you save the workbook in a file format compatible with previous versions of Excel (including Excel for Windows). Changes made when you move or resize the formula bar will now be retained. Microsoft also improved support for secondary displays.

PowerPoint 2008 changes: The presentation software now remembers when you fix a broken movie link and then save your file. In addition, the update fixes speed and stability issues when printing, while making it easier to see and drag static guides. Microsoft introduced a set of new AppleScript classes and commands for creating scripts that select and perform operations on selected objects. Users can also now apply transitions to slide masters.

Entourage 2008 changes: The update fixes a vCard bug that prevented Entourage from exporting cards without photos. It also improves Microsoft Sync Services stability, fixes problems with hyperlinks, gains an updated definition file for more effective junk e-mail filtering, and retains original received dates and times of imported messages. The e-mail client will now skip bad messages when it's connected to POP e-mail accounts so that it can continue to download remaining e-mail messages. The update prevents duplicate contacts and calendar events after syncing with an iPhone or iPod touch for the first time and now renders HTML signatures correctly.

Office 2008 SP1 is available now as a download from Microsoft's Web site or via Microsoft Auto Update.

Service Pack 1 is the second update released by Microsoft since Office 2008's debut. In March, the company issued Office 2008 for Mac 12.0.1 which offered security and stability improvements for the productivity suite.

Macworld is an InfoWorld affiliate.

Hewlett-Packard has confirmed it is in talks to acquire IT services company Electronic Data Systems in a deal that would give it more competitive muscle against worldwide services market leader IBM.

The price tag for EDS could be around $13 billion, according to a report in the Wall Street Journal published on Monday.

Both companies issued statements Monday confirming that they are in "advanced discussions" about a merger. They said they would not comment further until a deal is reached or the discussions end, and they each cautioned that there is no guarantee that they will come to an agreement.

The deal would strengthen HP's competitive position against IBM, whose Global Technology Services division has long been a strong profit generator for the company.

"I see it as an attempt by HP to really go head to head with IBM in a much more meaningful way, especially in technology services and IT outsourcing," said Dana Stiffler, research director with AMR Research.

Even after the merger, however, the combined companies' global services revenue would fall about $10 billion short of that of IBM, based on their figures reported for 2007, she said.

The market at stake was worth $672.3 billion worldwide in 2006, a 6.4 percent increase from 2005 according to a Gartner study released about a year ago. While IBM led the market with about $48 billion in revenue compared to second-place EDS with about $21 billion, EDS' 7.6 percent growth outpaced IBM's 1.8 percent growth. HP took in about $16 billion in services revenue and grew 2.1 percent between 2005 and 2006.

The deal would strengthen HP's services capability in some areas but not others. EDS would give HP a boost in custom application services and infrastructure management services, but less so in managing packaged applications from the likes or Oracle and SAP, Stiffler said.

"Another thing it wouldn't give HP is a strong business consulting presence, a go-to-market capability where you address operational executives and line of business people as much as the CIO," she said.

EDS may well be open to an acquisition though, according to Stiffler. "I think aligning themselves to HP makes them potentially a more future-focused and viable competitor than they are as a stand-alone company," she said.

There is a challenge for both companies. "Both HP and EDS grew up in a traditional world prior to India emerging as a global delivery center," Stiffler said, noting that Indian companies such as Wipro are focused on providing low-cost application development services.

It's a fairly bold move by HP, said Kathryn Hale, research vice president at Gartner. ""That is just amazing. It sounds like more than just speculation."

Only HP, which earns $17 billion in revenue in 2007, has the wherewithal to acquire EDS, which is second in outsourcing revenue at $22 billion, Hale said. That would make it the second-largest services company in the world, bringing it closer to IBM, which earned $54 billion in services last year.

HP's services focus mainly on product support, and the EDS acquisition could give HP the professional services revenue it would need to be considered a serious threat to IBM, Hale said. HP will also be able to use EDS' global network to expand its services presence, Hale said.

EDS has been struggling recently, and the HP acquisition would make a difference to both companies, Hale said. In its most recent earnings conference call, EDS talked about layoffs.

This story was updated on May 12, 2008