Dell has announced that it is acquiring IT services provider Perot Systems for $3.9 billion. The purchase gives Dell a larger footprint in the services arena, but doesn't put it in the same league as dominant IT services entities like HP and IBM. It does provide Dell a means of potentially increasing hardware sales and boosting profits overall though and that is what matters to Dell.
The parallel with HP is hard to ignore. HP, Dell's rival in both hardware sales and IT services, recently bought EDS, Ross Perot's original IT (and much larger) IT services company. The purchase of ‘mini-EDS' sort of makes Dell a ‘mini-HP'.
That is sort of where the comparison ends though. Certainly the two will compete-- with each other and with rival IBM. They will fight in both the hardware sales and IT services markets. But, even with the Perot Systems acquisition Dell is not really in the same league as HP or IBM in terms of the size and capabilities of its services.
The purchase isn't about beating HP or IBM though. Its about building a better Dell. Dell has faced sliding PC and notebook sales and fallen from the top perch, to #2, and even to #3 at times depending on the market you are looking at. As if the fierce competition isn't enough, the economy has slowed overall PC sales and the profit margin on hardware sales isn't very large to begin with.
Dell and Perot Systems have already worked together for some time. The purchase basically extends that existing relationship and allows Dell to benefit from revenue that has been flowing to Perot Systems.
Dell has explored other alternate revenue streams lately as well. With declining PC sales, Dell has been fairly aggressive about expanding its horizons and looking at new markets to boost revenue and maintain profitability. In addition to IT services, it is also jumping into the mobile device handset market--albeit in China.
Services is where the money is. Providing services is almost pure profit, whereas delivering hardware is almost pure overhead. There is a symbiotic relationship between the two as well though. Hardware sales generally lead to services contracts, and services contracts can boost hardware sales. Its not coincidence that the major IT service providers (HP, IBM, and now Dell), are also the biggest hardware manufacturers.
The Perot Systems purchase won't make Dell an HP or an IBM, but it will provide Dell with a solid business unit that can boost revenues and strengthen Dell's profitability.
Tony Bradley is an information security and unified communications expert with more than a decade of enterprise IT experience. He tweets as @PCSecurityNews and provides tips, advice and reviews on information security and unified communications technologies on his site at tonybradley.com .