Searching for growth and better margins, Dell is expanding its enterprise IT consulting business by acquiring Perot Systems for $3.9 billion in an all-cash deal. Perot Systems is the IT consulting and integration services company founded by Ross Perot in 1988 four years after selling Electronic Data Systems to General Motors. (EDS is now part of HP, which bought it last year for $13.9 billion).
The shift to consulting services will make Dell look more like IBM (and HP). Dell has an existing services division, which will be rolled into Perot Systems. Peter Altabef, the current CEO of Perot Systems, will run the combined IT Services business. Both Dell and Perot Systems are based in Texas, which should make the combination go smoother.
Perot Systems will bring about $2.5 billion in annual revenues to Dell at its current run-rate, which is not a lot considering that Dell did $61 billion in revenues last year. And Perot Systems isn’t exactly a profit machine. In the last quarter, it’s net income was only $31 million, on revenues of $628 million (a 5 percent net margin). Maybe Dell can pump up those revenues by plugging Perot Systems into its existing enterprise customers, which account for about a quarter of Dell’s total revenue.
So many huge deals this month.
Pretty good deal for Dell to help compete in Enterprise space for Americas and EMEA. Not sure will help in biggest challenge = growing transactional share in Emerging Markets & China
WOW!!! This is interesting.
Wow. That is a game changer of sorts….
After HP/Compaq/DE lining up service and hardware…. took Dell long enough to decide to go this route….
To bad they missed coming up with a competitive mp3 player/phone with a developer network… but hey competing the old fashion way on service and support has gotta work… doesn’t it?
This is what happens when you have biz dev guys who want to be home every night for dinner,
I work for Perot. And now my job will definitely be outsourced to India!
dell wanted to a powerhouse in software arena too
DELL, HP: AND THEN THERE WERE TWO
Two computer hardware companies have survived and the others have been acquired (e.g., Sun). Both HP and Dell want services to be a greater percentage of their offerings – hence HP’s EDS and Dell’s Perot Systems acquisitions (remember HP tried to buy PWC way back in the 2000-timeframe?). It seems that the traditional computer hardware business has stopped growing (i.e., PCs, laptops)- if you recall Lou Gerstner said that the PC had become irrelevant. It’s the age of mobile devices and back-end servers!
DOH! Perot Systems (PER) was a NASA gov’t IT contractor/consulting that I briefly worked for before converting to Federal civil service…I sold the employee discounted stocks a couple of yrs ago
Perot’s gross margin is 20%. That is pretty low for a services organization.
I proudly worked for Dell for 5 years and left it 2 years ago. Dell always laughed at the low margins of the consulting companies. Now it buys a mediocre one, quite disappointing.
It only underscores the fact that:
- Dell currently is perceived as a desktop manufacturer that isn’t able to beat Acer on price and volume in the consumer space and HP in the enterprise space and Apple in the high end space.
Shame that Dell couldn’t find anything more useful to invest in.
Dell going the IBM way.
A DINOSAUR buying a DINOSUAR
BYE BYE American jobs
4 billion for this? why didnt they buy something else ? lmao wow
wtf is perot systems
As a former employee of PS who heard rumors of this in April, I am amazed that they got a 65% premium for this. Nothing against Perot, but I think Dell is desperate to grow so they threw money at it. I think they will pay for it with quite a bit of restructuring. Perot already has ~15,000 employees in India – I imagine that will grow.
Another step in the maturing of enterprise 1.0?
Interesting, Everyone is changing so Dell
DELL cannot compete anymore with Acer, ASUS and Samsung on PC’s and other hardware.
DELL has to move in an opposite direction: enterprise IT consulting services.
Problem:
From being a product company they get into a project company.
DELL will need to change their entire ERP and reporting system in order to handle this change.
Dell is entering the market too late. Services is where the money is unless Dell goes in Chip making. They are way behing IBN, HP, Accenture, Deloitte etc.
These comments suck.
Dell needed to get bigger into services and PerotSystems is mid-size player in that market with strong government/healthcare contracts and zero debt.
Hardware margins are next-to-nothing (unless you’re Apple), so PSC’s 20% margins are not bad.
You also have to understand that clients do not want to deal with multiple vendors anymore – they want a turn-key solution from a single vendor, so Dell cannot count on selling Blades to stay in business anymore.
Also, regarding all the “we’re going to get outsourced now” chatter, if you really worked here you would know that we are already near a 15/85 on/offshore ratio, so there’s hardly anyone left to replace anymore.
At The Transition Companies, we believe that acquiring companies, especially ones that have successfully cornered a specific audience, is often the most efficient and effective way to grow a company. Dell is looking to not only grow organically but to shift their current strategy and begin focusing on the services sector of industry. Through acquisitions like the recent Perot Systems deal, Dell will catapult themselves into the computer services sector allowing them to quickly compete with HP and IBM. “We can definitely expect to see continued acquisitions from Dell”, says Mike Ryan of The Transition Companies, “as they cast their net deeper into the computer services sector allowing them to rapidly expand their customer base