Dell makes IT services push with US $3.9 billion Perot deal

Dell Inc. appears to be ramping up its push for government and health care customers after announcing its US $3.9 billion acquisition of Plano, Tx.-based IT services firm Perot Systems Corp.

While both companies stressed the complementary nature of the deal, the move is primarily an effort for Dell to boost its IT services portfolio and give it a new dimension beyond its hardware selling business. In a conference call Monday, Dell chairman and CEO Michael Dell said the broader range of IT services will better position Dell for long-term growth and profits.

“It will also enable Dell to extend the reach of Perot Systems capabilities, including in the most dynamic customer segments around the world,” he said, referring to Perot’s strong footprint in the health and government industries.

After the acquisition is officially completed later this year, Perot Systems will become Dell’s services unit and will be led by current Perot Systems CEO Peter Altabef.

The move represents Dell’s first big step toward transforming its business towards an IT services focus — a shift the company has been talking about a great deal in recent months.

The fact that Dell and Perot Systems — founded by former U.S. presidential candidate Ross Perot — have collaborated on a variety of government and health care projects in the past made the acquisition an obvious one, according to Dell’s CEO.

“This will elevate our combined enterprise and services business to $16 billion, with services revenue of $8 billion over the past four quarters,” Dell added.

Ross Perot Jr., chairman at Perot Systems, said that 27 per cent of its revenue comes from government services. “It’s an area that we’ve focused on intently over the past eight years and have really built up,” he said, adding that the combined Dell-Perot team will also bring tremendous strength and scale to the health care industry.

And this includes Canada, as recently Perot Systems’ MEDITECH Solutions Group said it was expanding its resources, including its team of application specialists, to better address technology, integration and standards challenges in the Canadian health-care community.

The MEDITECH initiative, which aims to combine technology and application expertise in one package to healthcare customers, is almost certain to move forward with Dell’s high interest in this space.

Darin Stahl, lead analyst at London, Ont.-based Info-Tech Research Group Ltd., said that the current uncertainty about health-care reform in U.S. has left many health-care service providers sitting on the bench. He added that a Canadian organization looking to get involved with any U.S.-centric health-care services firm is going to have access to its “A-team.”

“From a timing perspective, if Canadian health-care organizations aren’t tied up with funding issues and are moving forward on projects, I think they’re going to get a different calibre of services, staff and opportunities,” Stahl said.

In this area, the biggest challenges for Dell will be related to how it can deliver these services, especially with strict regulations governing Canadian health-care data.

“If I do have a team down in Texas and I’m working with them, some data has to travel back and forth, so there’s going to be some unique challenges in trying to integrate those sorts of services into a Canadian market space,” Stahl said.

He added that Canadian IT managers will also have to be wary of a potential “bait-and-switch” from U.S. health-care vendors in these circumstances, especially if the U.S. health-care industry stabilizes.

The deal might also have been motivated by HP Co.’s recent activity in this space. Last year that company dished out $13.9 billion for another Plano,Tx.-based company, EDS, to bolster its own global services division.

Stahl said that even with HP’s long history of acquisition work, the ability to effectively integrate EDS has been challenging. “As you see with the EDS deal, it will be no mean feat to bring these organizations together and bring in those synergies,” he said, referring to the Dell purchase.

Still, according to Stahl, it was a move that had to be made, as Dell has been carrying too many eggs in the hardware- and computer-selling basket.