The Line Just Got A Little Thinner

Just when you were getting used to the “exception”

-of Oracle-Sun merger - here comes another big

news. Dell and Perot Systems have announced that they have reached a

definitive agreement, whereby  Dell will  acquire

Perot Systems in a transaction valued at approximately $3.9 billion.






Well, Dell's strengthening its services play is not exactly a surprise.
Neither is its decision to try out inorganic means for that. What comes

as some surprise, though, is the target: Perot Systems. While Perot

does have a strong play in the area of immediate interest to Dell:

managed infrastructure services, it has a stronger revenue flow from

application support and BPO. In the quarter ended June 30, Perot got

64% of its revenues from the two areas combined, while infrastructure

services accounted for only 36%.  






So, what made Dell zero in on Perot Systems? Arguably, it is a
combination of two factors: the latter's size and its positioning as a

new-generation outsourcing company. To begin with, there are not too

many firms with significant infrastructure services outsourcing

strength that are of the right size: large enough to give a serious

push to Dell's own services business and small enough to be integrated

well with itself. Computer Science Corporation (CSC) and Affiliated

Computer Services (ACS) are too large. Most others are too small. What

also explains the preference for Perot Systems is that in the last few

years, the company has transformed itself to be a new generation

company, that has significant offshore presence.






Not only does Perot have significant workforce in India, a lot of
veterans of Indian offshoring are now part of the company's operational

leadership team, which includes application and BPO boss, Anurag jain;

chief strategy officer, Raj Asava and chief of marketing, Atul Vohra.






In fact, India could well have been key in the entire transaction.
Perot's significant offshore presence in India would help Dell deliver

managed services remotely to its customers in America at a far lower

cost. Dell's fairly large offshore customer service operations in India

could complement Perot's back-office work out of India.






But the obvious questions that remain is-as it still does in
the Sun-Oracle merger-is what happens to the parts of the

business of Perot that are not directly relevant to Dell's positioning

today? And that is a larger part of the company. Perot is not just

another application and BPO company. It is an undisputed leader in

healthcare. It has now expanded that leadership beyond America by

signing contracts in emerging markets, such as the one it recently

announced in India: a multi-million dollar deal with one of India's top

new generation healthcare services company: Max Healthcare.






What would happen to those businesses? Or, will we see a new Dell,
which sells you not just its boxes but the entire IT services and even

BPO. The guys at Palo Alto would not have to defend their positioning

so hard any more.