Dell Plans To Modularize, Automate Services Business With Perot

Dell on Sept. 21 said it planned to acquire services and outsourcing giant Perot Systems in a deal worth $3.9 billion.

The deal closed in November. In between the announcement and closure of the acquisition, Perot bought China-based BearingPoint Management Consulting, which also became a part of Dell Services.

The completion of the integration was fairly quick given the size of the new combined Dell Services organization, which brought 23,000 Perot and 15,000 Dell employees together, said Peter Altabef, president of Dell Services.

Altabef, who on Wednesday addressed investors via a video blog on Dell's Web site, said the acquisition immediately makes Dell one of the Top 10 IT services providers in a fast-growing market worth over $800 million worldwide.

With the acquisition, Dell Services will immediately become one of the Top 10 IT services providers, Altabef said.

"Of that over $800 billion, no company has more than a seven-and-a-half percent market share," he said. "So it is really a wide-open market."

However, it is a market that is both growing and dramatically changing. For instance, Altabef said, the average length of contracts is getting shorter while the number of contracts and relationships is growing.

Despite the number of companies in this market, there is only a small handful which can offer a fully integrated set of services from warranty support to post-support for specific servers or storage units or desktop PCs all the way to applications, business process, integration and business and consulting IT, Altabef said.

"Dell Services is one of that handful of (companies) now that has complete end-to-end coverage," he said. "That wasn't the case necessarily for either of the two companies before the transaction. So this was a very complementary transaction."

Unlike many large acquisitions that are aimed at cost cutting or that otherwise create a lot of bad feelings, Dell's Perot acquisition is happening with few difficulties, Altabef said.

"This is an acquisition of two teams that have very complementary skills," he said. "And frankly, the teams are hugely excited because we can address the marketplace now in a way that very few other companies can, and in a way that is growth-oriented."

Dell has identified about $650 million in revenue opportunities over the next three years that it would not have seen if the acquisition had not gone forward.

Many of those new services opportunities will come as Dell applies its supply-chain expertise to start automating services, something that really hasn't been done before, Altabef said.

"[This transaction] gives tremendous domain knowledge around specific industry needs and specific processes," he said. "And then you kind of move that to this supply-chain focus that Dell has had, and say, how do we really provide better services that are meaningful in specific industries that are less expensive to deliver and much less expensive to receive if you are a customer."

Over the next three years, Dell will look at how to "modularize" services and create services that can be provided not only to enterprises but also to the SMBs that have typically been underserved with services, Altabef said.

The integration has gone well in part because the services market is a growing one, and in part because the people involved are not forced to come together. "This is a merger of willing participants," he said. "The leadership of both companies had a vision of what they both wanted to create."

Jayson Noland, an analyst at Robert W. Baird, wrote in a report on Wednesday that increasing revenue will be more difficult than getting cost efficiencies.

Noland also wrote that it appears Dell will be open to making further acquisitions to bulk up its services business.

"Given Dell's large cash balance and management's comments around driving global services expansion, we would not be surprised to see Dell engage in additional M&A," he wrote.