Years of integration difficulties followed Hewlett-Packard Co.'s last big acquisition, so investors are cautious about the technology company's latest plan to spend $13.2 billion on EDS.
But just as the deal to buy Compaq for $19 billion helped put HP ahead of Dell Inc. as the world's No. 1 PC maker, analysts say in the end the latest deal will likely prove successful too.
With its pending acquisition of technology services provider Electronic Data Systems Corp., HP is mounting a challenge in a sector long dominated by IBM Corp. While most analyst think the deal makes strategic sense, investors have punished HP's shares since the deal on May 12, with the stock down nearly 8 percent as of Wednesday afternoon.
"There is a bit of a wait and see approach before (investors) get more comfortable," said American Technology Research analyst Shaw Wu in an interview.
But the stock's relative weakness may not be solely due to the planned buyout, which represents a hefty premium to EDS's closing stock price on the last trading day before word of the deal leaked.
Wu noted that HP's latest quarterly results _ reported Tuesday but preannounced last week _ showed that the company's U.S. business was nearly flat, growing only about 1 percent.
In previous quarters, HP was able to grow its domestic business despite the economic slowdown. The company's massive overseas business, accounting for about two-thirds of total revenue, made up for the U.S. weakness.
Still, Wu said, "investors in general are a little concerned that the U.S. market is starting to be an issue."
The analyst, echoing others such as Richard Gardner of Citi Investment Research, recommends buying HP on any weakness.
Gardner thinks the stock will likely be range-bound for a quarter or two as investors gain more insight into where the market is growing, especially in Europe, as well as the strength of the dollar and component pricing. But he said in a note to clients he'd "use pullbacks as buying opportunities."
EDS, Wu said, will give HP a strong footing in the outsourcing, consulting and systems integration and applications services markets.
"They are not really strong in any of these areas," Wu said. EDS may also give HP more than its face value. The company is seen as poorly run, with past accounting problems but also strong service offerings and room for significant operating leverage, the analyst said in a client note.
Out of 24 analysts listed by Thomson Financial, 10 rate HP "Strong Buy," nine "Buy" and five "Hold." HP's shares are down about 10 percent year to date, roughly the same as another tech bellwether, chip maker Intel Corp. IBM, in comparison, is up more nearly 16 percent.
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