Dell Moves Into Services With Perot Deal

By The New York Times

Dell announced on Monday that it would acquire the information technology provider Perot Systems for $3.9 billion as it seeks to expand beyond its core personal computer business.

Michael Dell, the company’s founder and chief executive, has spent much of the recession talking about directing his company’s cash stockpile toward acquisitions, particularly in the services arena. By agreeing to buy Perot Systems, for $30 a share in cash, Dell has made just such a purchase. But even with the acquisition, Dell’s services arm would remain far smaller those of rivals Hewlett-Packard and I.B.M.

Perot Systems, based in Plano, Tex., handles a wide range of technology services, including data center management, software and consulting.

Perot Systems is “a premium asset with great people that enhances our opportunities for immediate and long-term growth,” Mr. Dell said in a statement. “There will be efficiencies from combining the companies, but the acquisition makes such great sense because of the obvious ways our businesses complement each other.”

Dell and Perot Systems, which was founded in 1988 by H. Ross Perot, said that the terms of the deal had been approved by the boards of both companies. Perot Systems, which had revenue last year of $2.8 billion, will become Dell’s services unit and be led by Peter Altabef, the Perot Systems chief executive. Ross Perot Jr., the chairman, is expected to join the Dell board.

“Today’s announcement is the next step in formalizing a relationship that has flourished for some time,” Ross Perot Jr. said in the statement. “When my father founded Perot Systems, he envisioned a global information-technology leader. The new, larger Dell builds on that promise and its own successes by taking Perot Systems’ expertise to more customers than ever.”

The combined heft of Perot Systems and Dell’s own services organization should result in about $8 billion of services revenue annually, according to Dell’s statement. Services deals tend to have far higher margins than selling things like PC’s and computer servers.

Since its overall business has slowed significantly in recent years, Dell has been exploring more profitable growth areas. It has been slowly building up its own services division through smaller acquisitions over the last two years. It has claimed to offer lower-priced services than its larger rivals and Indian services firm.

But the acquisition of Perot Systems now places Dell in much the same arena as its competitors.

Dell, based in Round Rock, Tex., is one of the world’s largest computer makers, with a customer base that includes corporate, government and home users. Dell said in late August that its profit fell 23 percent to $472 million in the three months through the end of July, as businesses reduced their computer purchases and prices tumbled. Revenue fell 22 percent to $12.8 billion.

For the fourth straight quarter, the No. 2 marker of PCs maker posted a drop in sales and profit from a year earlier. But in a sign Dell’s business may be stabilizing, it said sales rose slightly from earlier this year.

Dell posted earnings for its fiscal second quarter ended July 31 of $472 million, or 24 cents a share, down from $616 million, or 31 cents, a year earlier. Revenue was $12.76 billion, down 22% from a year ago.