Dell Drops Dell Ser­vices af­ter Block­buster EMC Ac­qui­si­tion

The $67bn EMC ac­qui­si­tion has led to fi­nan­cial hic­cups for Dell, and the Perot sale was a part of its strat­egy to fund the pur­chase by shed­ding off some of its non-core as­sets

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The $67bn EMC ac­qui­si­tion has led to fi­nan­cial hic­cups for Dell, and the Perot sale was a part of its strat­egy...

Af­ter the block­buster ac­qui­si­tion of stor­age gi­ant, EMC, Dell has de­cided to sell off its IT ser­vices unit, Perot Sys­tems, to Ja­panese tech­nol­ogy ser­vices provider NTT Data at over $3 bn. It was known that the com­pany was ap­par­ently fac­ing fi­nan­cial hic­cups and was look­ing at sell­ing off some of its non-core as­sets to fund the pend­ing ac­qui­si­tion. Dell’s IT ser­vices unit, pre­vi­ously called Perot Sys­tems, of­fers con­sult­ing ser­vices and busi­ness process out­sourc­ing for health­care sec­tor and was ac­quired by Dell in 2009 for $3.9 bn. The $67 bn EMC buy­out has re­port­edly re­sulted in sig­nif­i­cant debt for the com­pany and the Perot sale was aimed at cov­er­ing some part of it.

Dr Katy Ring, Re­search Di­rec­tor Cloud & IT Ser­vices, 451 Re­search, points out, “The main driver for the deal is Dell’s re­quire­ment to raise funds to help pay for the ac­qui­si­tion of EMC. The com­pany ac­quired Perot in 2009 to help it di­ver­sify from the chal­leng­ing PC mar­ket but Dell Ser­vices has al­ways been a sep­a­rate busi­ness not par­tic­u­larly closely in­te­grated with other seg­ments of the Dell op­er­a­tion.” Dell’s ac­qui­si­tion of cloud com­put­ing ma­jor, EMC, in a deal touted as the largest ever in the tech­nol­ogy land­scape was a strate­gic move to­wards strength­en­ing the com­pany’s hold in the en­ter­prise IT seg­ment. “For Dell, the strat­egy is to raise funds to com­plete $67bn EMC ac­qui­si­tion. The com­pany is fac­ing dif­fi­cul­ties in rais­ing funds due to fall­ing stock mar­ket, in par­tic­u­lar the crash in tech stock prices. This money, from di­vest­ment of Dell Ser­vices, will come in handy which will more or less cover the $4 bn break-up fee that Dell will be obliged to pay EMC,” says Biswa­jit Ban­er­jee, Se­nior An­a­lyst, PAC—A CXP Group Com­pany. The tra­di­tional PC ma­jor that is mak­ing swift moves to­wards de­vel­op­ing its end-to-end ca­pa­bil­i­ties is care­fully as­sess­ing all its op­tions. “With EMC, Dell be­lieves it has a broad enough port­fo­lio with prod­ucts and sup­port ser­vices to with­tive stand the chang­ing de­mands of the IT mar­ket. Con­se­quently, Dell Ser­vices as a pro­fes­sional ser­vices busi­ness, was sur­plus to strate­gic re­quire­ments,” states Ring. For NTT Data it will be an im­por­tant move as the com­pany looks at ex­pand­ing its global foot­print and ser­vice ca­pa­bil­i­ties.

Mov­ing ahead, in­te­gra­tion will be the key to un­lock­ing value in case of both the ac­qui­si­tions (NTT Data and Dell Ser­vices and Dell and EMC). As the ac­quired com­pa­nies come with dif­fer­ent cul­tures and mind­sets it will be a chal­lenge for both NTT Data and Dell to suc­cess­fully merge th­ese com­pa­nies into their wider or­ga­ni­za­tions. “Bring­ing two port­fo­lios to­gether will re­quire a sig­nif­i­cant amount of prod­uct ra­tio­nal­iza­tion, which may be dis­rup- and re­quire de­vel­op­ment of en­tirely new strate­gies,” says Ban­er­jee.

“I think the in­ter­est­ing trend to con­sider with this deal is how the big Ja­panese IT ser­vice play­ers are now se­ri­ously look­ing to In­dia as an im­por­tant source of skills and re­sources to help them ser­vice their large Ja­panese head­quar­tered clients Bring­ing two port­fo­lios to­gether will re­quire a sig­nif­i­cant amount of prod­uct ra­tio­nal­iza­tion, which may be dis­rup­tive and re­quire de­vel­op­ment of en­tirely new strate­gies” DR KATY RING, Re­search Di­rec­tor Cloud & IT Ser­vices, 451 Re­search

ISWAJIT BAN­ER­JEE Se­nior An­a­lyst, PAC—A CXP Group Com­pany “Bring­ing two port­fo­lios to­gether will re­quire a sig­nif­i­cant amount of prod­uct ra­tio­nal­iza­tion, which may be dis­rup­tive and re­quire de­vel­op­ment of en­tirely new strate­gies”

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