Dell acted as the "prime services integrator", working with Atos Origin and Getronics to provide a standard integrated desktop – known as the "virtual global workplace" – for 75,000 Philips employees.
But both parties have now admitted that the contract could not be completed successfully. Philips will continue to buy some of its hardware from Dell.
The premature ending of the contract will be a blow to Dell, said Kate Hanaghan, analyst at market watcher Ovum.
Dell is attempting to use its reputation for efficient, cost-effective processes to win business as an integrator of services for large, global business. "The end of the Philips deal shows that the Dell model is not bullet-proof," said Hanaghan.
Executives at Dell regard the building of a successful services business as a way of offsetting the diminishing returns expected from its hardware divisions, as competition and commoditisation eat into profits.
Even allowing for the Philips set back, Dell continues to be a highly profitable business: its fourth quarter profits, reported only a week ago, were up 52% year-on-year.