They said the days of the outsourcing megadeal were dead, but news that services and hardware giant HP is acquiring EDS for $13.9 billion (£7.13 billion) suggests that a tier one deal on the provider side can still take place, even as IT stocks rally against a downward market.

EDS with its deeply embedded links with the public sector may have exceeded guidance in its latest results, but its accompanying earnings call suggested a need to hide a less than stellar underlying performance with wordplay and semantics.

EDS boasts depth of experience in huge, complex deals, while HP brings a range of service and software offerings for which that is an ideal shop window and sales floor.

However, while analysts such as IDC's Douglas Hayward have been swift to roll out all the usual, predictable comments about the cultural and practical challenges facing them as they merge (surely that happens when any company buys or merges with another?), none of this provides much insight into the repercussions for the outsourcing industry.

It goes without saying that HP is embarking on the deal during a highly unusual US recession that sees both a lack of capital liquidity combined with sliding property prices, soaring commodity prices, inflationary pressures, and fears over job security.

The truth is that while the deal will doubtless shake up the market (in Ovum's analysis) and hand HP a tranche of governmental deals, for example, there are risks lurking in the shadows.

First, big-ticket government deals have seen many a global name damaged locally by the very public backlash that follows whenever such deals overrun and/or overspend; that will play very badly with HP shareholders who treasure the company's long-held reputation as a solid and reliable brand. No one was entirely convinced by the Fiorina-fronted vision of HP as the flexible, innovative service company rather than the offspring of two men in a shed.

The public sector is just that, and sector failures lodge in the public consciousness. EDS might not be a name on the lips of the average consumer, but HP certainly is.

Second, however, is the most important factor: the emerging topography and geography of outsourcing over the next five to ten years. That landscape that will lie in front of HP very swiftly after the months and years it will take to digest another mega-deal. By then, of course, a number of Indian service providers will have snapped up smaller, nimbler European services players and made themselves an attractive alternative to any giant that lumbers into view.

Knowledge process outsourcing (KPO), R&D outsourcing, and even legal process outsourcing (LPO) will soon become essential offerings for any global outsourced service provider – the latter on the back of deregulation in the legal services market and cost pressures within a highly litigious US. It seems unlikely that HP could even be in the frame to compete with the Accentures of the world in offering such a portfolio.

Mere marketplace muscle-flexing coupled with cost and labour arbitrage are gradually taking second place to skills, innovation and local knowledge, and you can't just buy the market presence of, say, IBM off the shelf.

The emergence of software as a service (SaaS) offers both great opportunities in the mid market along with a shift in the role of the CIO towards innovation and away from mere systems management, so again the deal, while impressive, seems a little old-fashioned. The stockmarkets might – fleetingly – crack a Bolly or two, but it may be over the bows of the Titanic.