Dell (DELL) has services revenue envy. Selling PCs and servers may be a good business, but offering IT services to big companies may be much better. Michael Dell looks at the large operations that IBM (IBM) and HP (HPQ) have developed in services and wonders why he can’t get some of the same. Computer companies use their enterprise relationships built through selling hardware to create operations to offer consulting on technology integration.
Dell brings in 10% of its $60 billion from its services businesses. Michael Dell told the FT that increasing the company’s revenues in this sector is a “huge opportunity”.and is already growing faster than hardware sales.
The question is how does Dell become a factor in the IT services business? It is already an industry that is crowded with companies which include other hardware vendors and big consulting operation like EDS (EDS) and Accenture (ACN).
One option is to buy and not build. Dell’s stock is at a 52-week high and the company now has a market cap of over $60 billion. EDS has a market cap of only $14 billion. Over the trailing four quarters, the company has brought in $21 billion in revenue and has had operating income of $2.8 billion. Dell could easily afford an acquisition, if it would catapult the company into an industry it viewed as critical.
Would Dell make such a large purchase? To keep its momentum going, it may have to.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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