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Hewlett-Packard Co.’s (HPQ - Analyst Report) Enterprise Services unit recently won a contract from the U.S. Department of Navy. The contract named Next Generation Enterprise Network (NGEN) is worth $3.45 billion and has five one-year extendable options.

Per the contract, H-P will be responsible for providing a wide range of information technology (IT) services and support to the Navy’s communications network that connects 8,00,000 users. To complete the contract, H-P will get support from AT&T (T - Analyst Report), IBM Corp. (IBM - Analyst Report), Lockheed Martin (LMT - Analyst Report) and Northrop Grumman Corp. The recent deal is basically an extension of a contract initiated in the year 2000.

The U.S. Navy has always been active in providing secure network access to its personnel. In a bid to provide secure network communications, the U.S. Navy formed Navy Marine Corps Intranet (NMCI) services, an IT outsourcing service program, in 2000. H-P was one of the prime vendors for the Navy’s networking services.

In order to bring in more government control over data-centric network operations and ensure consistency and security of the information services, the U.S. Navy is planning to transform the NMCI platform to the NGEN platform. H-P would extend its services to ensure that the transition is smooth.

However, despite having a close business tie with the Naval agency, winning this deal was not easy for H-P. In a neck-to-neck competition, H-P managed to defeat other bidders such Computer Sciences Corp. and Harris Corp.

Though this appears to be a significant win, especially at a time when H-P is looking to expand its margins, the financial impact of the deal is likely to be far less than the deals signed in the past. The contract has been agreed upon at a lower price mainly due to stiff competition and federal budget cuts.

Currently, H-P has a Zacks Rank #3 (Hold).

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