WHAT THE MEDIA IS TALKING

Dell’s Perot Buy

Positives:

Dell decided to go in for this acquisition to move beyond the hardware space, into providing services.

Most large technology companies have been expanding into higher margin IT services to secure stable and recurring revenue as computer hardware is becoming cheaper. With this deal Perot Systems agreed to be acquired by Dell for $3.9 billion to help Dell expand beyond hardware and into the higher-value services market

The acquisition vaults Dell into the health-care information-technology business, giving the company access to customers such as hospitals and insurance companies. 

Dell is now ready to compete more actively with HP and squeeze margins further. Dell is likely to benefit as companies enter the next round of upgrades to personal computers.

The acquisition will help fortify Dell's pursuit of new customers in the healthcare industry, a sector that's been getting a lot of attention from IT in recent months. The economic stimulus will drive adoption of health IT, demand will be considerable.

Challenges:

Integrating Perot poses a number of risks Perot's 23,000 employees represent a formidable integration

challenge for Dell. Financial Integration- Dell's key challenge will be to prevent its operating

expenses from ballooning as revenues recover in 2010, Additional burden of integrating a large services asset will add risks here.

Cultural Integration- The deal's benefits will only be realized if Dell can manage thorny integration challenges bound to arise as it looks to absorb an organization known for its rigid, by-the-book culture and reliance on a market—healthcare—where the PC manufacturer has little experience.  These are two very different kinds of companies so the integration issues are not going to be trivial

The inevitable result of this kind of deal is not that jobs are gained, but that they’re lost. Solutions become more standardized, sales cycles speed up and cost less, customization costs more as a percentage of the total deal, and the sector is absorbed  into the computing mainstream.

How media is responding to the news

Day 1

Perot will help us serve a wider set of customers: Dell

The move will help Dell diversify beyond its bread-and-butter hardware business, which has become a commodity business with low single-digit margins.

Dell was a dying breed of pure hardware vendors : key to their differentiation and survival

Perot brings strong capabilities and exposure to government and healthcare (areas of high growth even in this environment), while Dell will help with international and commercial exposure.

The key will be the integration piece and how to make it work since the cultures (services versus hardware) might be different and so is the vertical focus,

Day 2

Dell is abandoning their legacy of direct marketing

company to being outsourced

By buying Perot Systems, Dell is following in the footsteps of HP's acquisition of EDS in an attempt to match the IT outsourcing & services capabilities of IBM and that the equation would lead to disaster with a labor-intensive business, like Perot Systems, with a product-centric company, like Dell.

Adaptability in terms of manpower and how they scale up from product to solution to service will be a challenge. If they do not adapt to it, they will not only have to close down Perot by taking their capabilities, but also suffer losses at their end.

Day 3

Late entrant

Dell paid a huge price to buy Perot Systems and with services not a traditional part of the PC maker's DNA it will be interesting to see how it manages and integrates the new assets

Solution providers are taking a wait-and-see approach before determining whether or not Dell's blockbuster acquisition of Perot Systems will be a boom or a bust to their own services business.  

Analysis

While some analysts have termed the Dell's proposed $3.9 billion expensive, others have

warned about integration challenges.

What this means for India

Third of Perot Systems' employees are located out of India, : over 23,000 people This is a major plus for the combined services organization

The Indian market is becoming key for any company wanting to deliver services globally.

Competition is likely to heat up more: Dell's $3.9 billion purchase of Perot Systems , which has 1/3 of its workers in India, means the Indians will have another large competitor- India Outsourcing: Pay Is Down, Competition Is Up

"Dell's move is in line with its competitors"

–Diptarup Chakraborti, Principal Research Analyst, Gartner

"The integration is going to be challenging, as Dell itself is on an

internal restructuring exercise globally“

- Kapil Dev Singh, Country Manager, IDC

"The top three Indian IT vendors will have to contend with another strong player when they want to

increase revenues from those verticals“

-Sabyasachi Satpathy, Director, Mindplex Consulting

"Dell will take Perot to new geographies where Indian service

providers may face more competition“

- Scandra Mouli C S, Director of Advisory services, Zinnov

"There will not be an immediate impact on India, as such deals take a lot of time to integrate“- Alok Shende, Principal Analyst,

Ascentius Consulting

The End