Can Dell make it as an enterprise IT services firm?

By Dave Bailey on Sep 28, 2009 8:17 AM
Filed under Hardware

Before it can effectively rival HP's and IBM's services offerings, Dell has along way to go.

The announcement by Dell earlier this week that it is to acquire IT services firm Perot Systems for US$3.9bn (£2.4bn), looks to be the Texas firm's first step on the road to becoming a full-blown IT services company.

Dell said that that the takeover would create an IT services firm with US$8bn (£5bn) in services revenue.

The motivation for Dell is obvious: hardware margins have been under downward pressure for a decade; virtualisation is enabling organisations to achieve greater server utilisation; and the recession has seen corporate buyers delaying desktop and server refreshes. Compared to hardware manufacture, IT services looks relatively healthy.

In a conference call to announce the acquisition, chief executive Michael Dell said that integrating services into as a single offering would significantly expand his company's enterprise solutions capability.

"We'll also be leveraging Perot Systems' enterprise services capabilities across a much larger Dell customer base that spans multinationals and large corporations, government, healthcare, educational institutions, and small and medium businesses," added Dell.

Focusing on IT services rather than hardware manufacturing is something IBM achieved earlier in the decade, after years of internal change, so it is likely to take Dell some time. And then there is the competition Dell will be up against.

Gartner research vice president Dane Anderson said that Dell would be looking to exploit opportunities similar to those HP got when it acquired EDS in May 2008.

"But this acquisition is not on the HP/EDS scale and as such won't guarantee Dell such a grand stage," he said.

It's a view echoed by Clive Longbottom, Quocirca services director for business processes facilitation. Enterprise customers go to Dell because they think they can save a few hundred pounds on each server, he says. "But now those same customers can go to IBM or HP or Fujitsu, and can get servers at the same price, and a choice of services wrapped around the offer."

European customers wanting to benefit from Dell's acquisition could have a long wait.

"Perot is a well-known name, but Dell will have to put in a hell of a lot of money to bring it to Europe, or they’ll have to build it up another way, because you can’t suddenly take Perot and deploy 10,000 people in Europe," said Longbottom.

"if I was a European customer looking at this I’d think there'll be no change in the near future. Remember, Dell can't afford to buy Accenture, CFC or some other big independent that would have brought immediate benefit," added Longbottom.

Gartner's Anderson believes the deal could open new doors for Dell. However, he sounds a note of caution.

"While this gives Dell greater services capability, and specific expertise in several verticals, the reality is, it does not give the company carte blanche to pursue all deals of all sizes in all industries."

Anderson thinks Dells needs to maintain focus on Perot's established niches - healthcare and government - first, then sell modular services to SMEs.

Dell expects the transaction to close in its November-January fiscal quarter, subject to government approvals and other customary conditions.

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Can Dell make it as an enterprise IT services firm?
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