One more total solutions play?

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: The interesting facet of the latest megadeal announced in the global IT industry is not the rationale for what is clearly an attempt by the last pure play hardware provider to become a true solutions provider, but the strategy that will be deployed to ensure that this acquisition justifies the high ticket price that has been paid to do the deal. In a slow demand environment where company valuations have declined steeply since the onset of the recession, a price of $30 per share for Perot is many notches higher than the $25 per share that Dell’s rival HP paid for EDS in the pre downturn era. Will a resurgent Dell be able to justify this to its shareholders and customer segments?

With IBM having repositioned itself as a total solutions provider many years ago and HP following suit, the historically acquisition shy Dell would have seen Perot as one of the few options available to it to become a truly significant competitor. Apart from Perot’s significant size of $3 billion dollars in services which will give Dell the much needed hedge against hardware demand slowdowns that has made HP look better in recent times than it may have done without EDS, the significant strengths of Perot in the recession-proof government and healthcare segments can transform the fortunes of Dell if it plays its cards well in the coming months. In an environment where both desktop and laptop sales of Dell have shown significant declines, a growing services business would be a welcome shot in the arm.

Contributing 27% of Perot’s revenues, the government services business in which Dell has been a significant though niche player, could be the immediate target of the duo in the US as well as other key markets with most governments balancing their spend on products and services in recent times. For example, the agencies under the General Services Adminstration in the US have already spent close to $11 billion on services in the first 10 months of fiscal 2009. Large opportunities are available to US providers like the plan to convert medical paper files to electronic records which has received a $20 billion allocation in the US stimulus plan, a figure expected to double soon !