Dell Expands IT Services with $3.9B Purchase of Perot Systems

September 22, 2009

D.H. Kass

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Dell’s plan to meld its manufacturing capabilities with an expanded services business, while not a novel idea, is a proven formula that others have used to arrest sliding fortunes. Chief executive Dell said that the deal is not a signal that the PC maker is de-emphasizing its core business in favor of services but rather a determination to grow both avenues of the company.

In the past four quarters, Dell has posted declines in revenue and profit from the year earlier. In late August, it said that revenue dipped 22 percent to $12.8 billion and profit fell 23 percent to $472 million for the three months ending in July.

While the agreement perks up Dell's enterprise portfolio and strengthens its position in the hotly competitive IT services market, it does not substantially close the gap in services-related sales between Dell and key rivals IBM Corp. and Hewlett-Packard Co.

By comparison, IBM’s Global Services unit maintains some $60 billion in annual sales, and last June, HP buttressed its services organization with a $13.9 billion acquisition of Electronic Data Systems, a deal that could boost its annual services revenue beyond $30 billion.

In recent years, Dell has made 10 acquisitions--most notably its purchase of storage vendor EqualLogic late in 2007 for $1.4 billion—but none carrying the heft of this one or commanding the potential to pave the way for others.

Chief executive Dell said that once the integration of Perot is completed, he “would not be surprised to see other smaller potential acquisitions as a result of this one.”

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