Hewlett-Packard Co.'s reported interest in buying Computer Sciences Corp. brings its share of benefits and risks, according to industry observers.

The move could rapidly grow HP's services and outsourcing business, giving the Palo Alto, Calif., company the size and breadth to compete with the likes of IBM Global Services, they said. However, if not done right, such a move could prove to be a major burden on a company that is trying to improve its financial situation.

The possible deal was first reported in the Wall Street Journal Thursday, which said that HP would team with the Blackstone Group, a financial equity firm that had been part of another group that had looked into buying CSC before negotiations ended. That group—which included Lockheed Martin Corp. and Texas Pacific Group—reportedly had offered $12 billion this fall for the El Segundo, Calif., company. It was unknown what price HP and Blackstone may be offering for CSC.

Typically, when an outsourcing deal is made, the outsourcers buys some of the customers' assets—such as purchasing the computer hardware and hiring some employees—which can lead to greater debt and higher costs. However, Indian outsourcers tend not to buy such assets, which means they are not as burdened by high upfront costs or the need to maintain and depreciate the hardware, and can price their services accordingly. This is putting even greater pressure on the major traditional outsourcers.
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The article is sponsored by A-1 Technology Inc, dealing in offshore outsourcing and offshore software development.