Channel Watch

Dissecting the Dell Deal

Time to play that favorite channel parlor game: Can Dell be trusted?

• By Scott Bekker
• November 01, 2009

In the next few months, Round Rock, Texas-based Dell is expected to close the deal to buy Plano, Texas-based Perot Systems for $3.9 billion, becoming effectively a company doing $8 billion a year in services revenue.

During the conference call announcing the deal, Dell Chairman and CEO Michael Dell made two statements that are, at face value, rather alarming to solution providers. In one, he said that, once purchased as a subsidiary, Perot Systems will be the flagship foundation asset in services around which all of Dell's services offerings will be built.

In the other statement, Dell responded to an analyst's question by saying Dell did indeed expect to chase after clients of all sizes, including small clients, through its Perot subsidiary.

Is this deal a bad sign for solution providers with less than $8 billion in revenues -- or $4.1 billion, if you want to leave out Dell support revenues? Is Dell wiping out, in one fell swoop, all of the goodwill it's been building up through its new channel push in the last two years? Let's play that favorite channel parlor game: Can Dell be trusted?

I'm going to say this deal is less dangerous than it may seem at first blush to solution providers, at least for those who aren't already being pushed around by Perot Systems in the health care market.

Perot Systems generates 48 percent -- the largest share -- of its revenue from health care, and Michael Dell termed the turnkey access to that market one of the most "attractive elements" of the deal.

Peter Altabef, president and CEO of Perot Systems and the man who would be running the Perot subsidiary if the deal goes through, told listeners on the call: "We're probably the largest IT services provider both in terms of number of hospitals as well as in terms of revenue across the globe." The company operates in 1,000 hospitals and provides physician services directly to 30,000 doctors and indirectly to about 200,000 doctors, Altabef said.

Then he said the magic letters: ARRA, or American Recovery and Reinvestment Act of 2009. Getting in on that federal stimulus money for health care could conceivably be one of the few major growth opportunities of the next 12 months. "The physicians practice for us has been growing expansively and we expect that will probably continue to grow with the changes, especially in the [United States] around the ARRA," Altabef said.

There are other important aspects to the deal. Dell could conceivably leverage the 23,000 Perot Systems associates and grow the 27 percent of Perot Systems revenues in the commercial sector into a broad services team that makes Dell better at going head-to-head with the Electronic Data Systems-powered services arm of Hewlett-Packard and with IBM Global Services. But first, Dell/Perot Systems will be busy snapping up low-hanging revenues in health care.

For smaller solution providers, the Dell partner program's positive recent decision to reduce the deal registration threshold for U.S.-based solution providers from $50,000 to $15,000 is a more immediate, and important, development.