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Monday, September 21, 2009

Dell To Buy Perot Systems : Too Little Too Late!

Dell plans to acquire Perot systems. The momentum picks up! Dell expects this deal to position itself as a more formidable player parading both its hardware and services expertise given the fast changing nature of the business and the faster adoption of cloud computing. Dell was as always seen as a laggard when it to comes to services and given that its principal competitors – HP & IBM are now very big in services, Dell had to anyway bite the bullet of acquiring some big service player. Perot’s strengths are mostly in Banking, Financial Services, Healthcare & Government and would to a limited extent help Dell directly with its footprint. The capabilities of Perot system may be more useful to Dell compared to its current customer base. Perot systems customers would have to factor in the new reality of Perot systems ownership changing to Dell, though the existing CEO would continue to run the business. Two things struck me:

A. Dell must have acquired a services company at least two - three years back when it confronted serious growth troubles – At around the same time, HP muscled in to acquire EDS. I predicted that HP may buy EDS in years before ithappened.

B. Perot has limited scale compared to the other global service players and India headquartered service players. Perot’s offshore capability also is generally seen to be quite limited compared to other traditional global players. Valuation looks interesting here: 2.8 billion USD revenue gets a valuation of 3.9USD billion after providing a substantial premium to last quoted trade.

I am not too sure if this move by Dell would perturb IBM or HP given the lack of scale of Perot's operations, while this may give some limited upside to Dell. The corporate integration may get accomplished easily given that both companies are headquartered in Texas. I was actually expecting Dell to make a serious move to get into smartphone market - say by acquiring Palm. It may happen in the future - we will have to wait and see. It would be interesting to see how Oracle (which recently acquired Sun) looks at this development. I am very keen to watch what Cisco does now – it has entered into the more competitive server business (big competition to Dell , IBM, HP) and has more ambitions in unified computing. Cisco cash position and appetite for acquisition is well known and in the recent past there had been rumors of Cisco looking at acquiring Accenture.While am not clear about how this acquisition may decisively benefit Dell, I do believe that Dell’s move may trigger a new momentum in Cisco’s next acquisition move as well!

Update : See Phil's and Vinnie's perspective as well.

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