Dell plans to acquire Perot Systems

Computer manufacturer Dell has announced its intention to acquire global IT services company Perot Systems for $3.9 billion, cementing the analysis that it is now almost impossible to operate a global hardware manufacturing business without a significant IT services capability.

The announcement comes just three weeks after Dell revealed yet another disastrous set of financial results: its revenue for the second quarter of the financial year fell to $12.8 billion, down 22% compared to the company’s already wavering performance in the second quarter of last year. Roughly 16% of Dell’s revenue in that quarter derived from its services division, which provides customer support and some infrastructure consultancy.

Perot Systems, meanwhile, grew its revenues by 11% to $628 million in its most recent financial quarter, typifying the easier ride – compared to the rest of the IT industry – that services companies have enjoyed in recent times. One explanation for this is that while hardware and software procurement, for example, can be easily halted, businesses that have outsourced IT operations have little option but to retain their suppliers’ services.

Dell hopes that the proposed acquisition will help it to sell more hardware through Perot’s services operations. ”This significantly expands Dell’s enterprise-solutions capabilities and makes Perot Systems’ strengths available to even more customers around the world,” said Michael Dell in a statement. “There will be efficiencies from combining the companies, but the acquisition makes such great sense because of the obvious ways our businesses complement each other.”

The deal echoes HP’s 2008 acquisition of EDS (the company founded by former presidential candidate Ross Perot before he want on to start Perot Systems). Whether or not HP’s EDS acquisition has gone according to plan has been somewhat obscured by the recession. While the addition of EDS’ revenue to its own helped to conceal what would otherwise have been a precipitous fall in revenue for its most recent quarter, HP’s hardware sales – like those of all its competitors – have nevertheless declined since the credit crunch struck. Its IT services division, meanwhile, earned less revenue than EDS did in the approximately equivalent quarter of the previous financial year.

Arguably the most successful reaction to the recent decline in the hardware industry has been that of IBM, which sold its PC manufacturing business in 2006.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

Related Topics