HP's takeover to spark M&A in IT sector

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to add new service lines, strengthen marketing muscle and add large clients in new regions.

Last year, talk circulated that Infosys, which has a market value of $24 billion, or smaller rival Wipro may bid for Europe's biggest IT firm Capgemini, but all the companies denied the rumors.

"Indian firms may not be able to digest a large firm, but they are certainly focused on small and mid-sized firms to gain access to some specific service lines, like consulting, where they have not been able to make a big mark," Vashistha said.

"They have no chance to do that and compete with players like IBM, Accenture, and possibly combined HP and EDS, organically."

The big Indian IT firms are not considered easy takeover candidates themselves. Wipro and Satyam are family controlled, while TCS is majority owned by the Tata family group and Infosys is controlled by a group of founders.

A THREAT TO IBM?

If EDS were to remain independent, it would have a tough time holding on to its No. 2 slot in the IT services market, which last year pulled in revenue of $748 million, said Allie Young, an analyst with Gartner.

"Right now IBM is double the size of its nearest competitor in the services business. What we are seeing here is that the gap has closed significantly," she said.

"IBM hasn't been threatened this much in a long time."

Together HP and EDS would have roughly $39.4 billion in services revenue, compared with IBM's $54.1 billion last year.

"Scale helps keep costs in line and they could be good for customers. With such a large services organization, the smaller customers might fall through the cracks and get lost," said Chad Hersh, analyst at technology research firm Novarica.

"But I think they are doing this to go after the truly large players. This will certainly help HP make the case that they are truly a leader in global services."