UPDATE=Perot Systems: Prescription For Dell's Service Business
21 Septembre 2009 - 11:10PM
Dow Jones News
Dell Inc.'s (DELL) proposed acquisition of Perot Systems Corp.
(PER) for $3.9 billion is good medicine for the computer maker's
fledgling services business.
Dell, Round Rock, Texas, generates around 60% of its roughly $61
billion in annual revenue selling computers and servers. Now, the
company is following other competitors that have expanded from
hardware into services, like International Business Machines Corp.
(IBM), Hewlett-Packard Co. (HPQ), Accenture PLC (ACN) and Fujitsu
Ltd. (6702-JP).
Unlike those companies, however, Dell isn't trying to be all
things to all people. Rather, Dell is building on its already
prominent government and health-care business, the industries Perot
Systems specializes in serving. That could make Dell even more
attractive to its clients that are looking for both packages of
hardware and advice on how to deploy it.
Though Dell is late to the services sector, its timing might
prove opportune. Tech spending in the approximately $2.5 trillion
U.S. health-care industry is expected to grow by as much as 10%
this year, according to findings from a recent survey by market
tracker IDC. Gartner Inc., another market tracker, says health-care
IT services revenue will have a compound annual growth rate of 5.1%
through 2013. That natural growth could get a boost if the Obama
administration succeeds in pushing through health-care overhaul,
which would expand coverage to millions of Americans.
Also auguring well for the acquisition: An earlier
economic-stimulus proposal that has large dollops of cash directed
toward the government and health-care sectors. IDC identified about
$23 billion in spending on government and health care IT as part of
the stimulus package.
"We believe that [Perot Systems'] strong health-care and federal
government business create sustainable competitive revenue
opportunities for the combined companies," BMO Capital Markets
analyst Keith Bachman wrote in a note. He added that while Dell
would have an overexposure to the U.S., that could benefit the
company in the near term because the country will likely emerge
from the recession earlier than Europe.
Dell's profitability is also likely to benefit, though how
quickly and by how much remain to be seen. Professional services of
the kind Perot Systems sells are much more profitable than Dell's
hardware sales, so the mix is sure to bolster Dell's gross and
operating margins. "Clearly, it's a positive for Dell's margins,"
Dell Enterprise Chief Technology Officer Paul Prince said in an
interview.
Given their substantial lead over Dell, neither Hewlett-Packard
nor IBM will likely feel a broad challenge. But Dell's move could
force the two companies to pay more attention to their own
health-care and government sectors.
H-P didn't return email seeking comment for this article. IBM
declined to comment.
Of course, the acquisition won't propel Dell into the top
rankings of IT services providers. Over the past four quarters,
Dell and Perot Systems had a combined $8 billion in revenue from
what Dell describes as "enhanced services and support." That's a
far cry from the $58.9 billion in IT-services-related revenue IBM
generated in 2008, according to a June report by Gartner. Over the
same period, H-P had $38.6 billion, although its acquisition of EDS
didn't close until the end of August 2008, according to
Gartner.
Meanwhile, Perot Systems has annual revenue of just $2.8
billion.
Now, Dell is making the same move, though in a deliberately
narrow fashion. Capitalizing on its own strengths, analysts say, is
the smart way for Dell to look for growth.
"It's a step in the right direction in addressing Dell's
services capability," said Kaufman Bros. analyst Shaw Wu.
Dell shares fell 4.1% to $16.01.
-By Ben Charny, Dow Jones Newswires; 415-765-8230;
ben.charny@dowjones.com
(Jessica Hodgson contributed to this article.)