Dell: Dell gets bigger

Dell’s acquisition of Perot System for $3.9 billion is being seen by most analysts as a strategic call. This will give Dell an enlarged footprint. Both the companies will get a chance to diversify. Of course, it will make Dell a service powerhouse – globally and in the country too.

“The acquisition suggests that Dell believes the information technology market is restructuring around disruptive new models with greater flexibility and control for the user,” says a survey by Everest Research Institute. “It is a bold initiative to transform the IT services delivery model much like it restructured the hardware supply chain.”

Perot Systems is relatively small – $2.7 billion in annual sale, whereas Dell is a much bigger $54-billion firm. Dell says this will mean a better positioning of the company as it can provide a broader range of IT services and solutions, extend the reach of Perot Systems’ capabilities, and supply Dell computers to Perot Systems customers.

Dell's service globally is largely centered on its (dwindling) hardware/infrastructure sales, while Perot Systems is a leader in infrastructure services and outsourcing. Dell needs to shore up its sagging revenues, while Perot acquires an enviable international client base.

In terms of services, Dell’s revenue is around $5.7 billion. Together with Perot Systems’ execution capability, it creates a formidable competitor that may not play the game by the same rules, says the Everest report.

The acquisition also highlights the growing need for integrating hardware and services for infrastructure management. Before Dell, Hewlett Packard expanded its services portfolio with the acquisition of EDS.

India will play a significant role in the integration roadmap for both the companies. Perot Systems has close to 8,300 employees across six centres in India. The Bangalore, Noida and Pune centres cater to application development and infrastructure services. Hyderabad, with 80 to100 people, offers engineering services. The company’s BPO operations are run from Chennai and Coimbatore and consist of over 4,000 people.

Dell too has close to 12,000 people in India spread across four segments: Research & development, marketing, domestic sale and BPO. The company’s BPO centres are in four cities – Chandigarh, Hyderababd, Bangalore and Gurgaon. Analysts believe that the acquisition will perhaps help Perot Systems expand its Indian footprint.

While announcements to date suggest, says Everest, modest cost synergies and a focus on growth of offerings such as modular services, the cross-selling of traditional products and services into the respective customer bases of Dell and Perot Systems offers substantial opportunity. How quickly integrated offerings emerge and the penetration of new customers will be a gauge of Dell’s strategic progress.