Japanese company NTT Data Corp will pick up Dell’s consulting wing, Dell IT Services, for more than $3 billion (£2bn) – in a move analysts have noted as canny for both businesses.
“Since going private, Dell has been doing a lot of restructuring,” says Liz Herbert, principal analyst at Forrester Research. “Dell has been doing even more restructuring in the wake of the EMC deal, as the tech giant is now very publicly looking for cash.”
Dell’s $67 billion mega-merger with EMC is the largest of its kind in the technology sector. But the deal left Dell lumbered with enormous debts.
In the years following Dell’s 2009 acquisition of Perot Systems, which it transformed into Dell Services, the business did not quite meet its expectations, according to Herbert.
“The services business has never been as core to Dell versus some of its other lines of business, such as its consumer business,” she says. “While Perot had a leading brand in services, especially in industries such as healthcare, Dell was not able to translate the strong Perot brand into a strong services brand association for Dell.”
“Dell also struggled to achieve the full potential it had hoped for between Dell Services and Dell Products.”
These are all reasons, Herbert says, that the sale makes solid sense for Dell.
For its part, NTT hopes to enjoy increased business process outsourcing capabilities, particularly in healthcare and insurance. It will also pick up Dell Services data centres in the US, UK and Australia, where it will also hope to extend its reach in these markets.
NTT has acquired other services businesses over the past few years, including Optimal Solutions, Intelligroup, and Keane.
“This acquisition of Dell Services will further strengthen its position as a top global services provider as well as further strengthen its portfolio outside of Japan,” Herbert says.
According to Gartner’s research director of cloud, Sid Nag, Dell has been looking to get rid of assets that don’t gel with its strategy since it committed to the EMC merger – namely, enterprise systems and hardware like server, storage, networking, and private cloud, including cloud-related systems.
“Dell Services is one such entity,” Nag says. “So Dell gets the cash flow to close the proposed merger – also, they don’t have to lay off their services folks as an outcome of this.
“Dell Services currently includes its business process outsourcing, applications and infrastructure, and cloud computing services. Other than the cloud computing services, the application and BPO services really have no play in the Dell-EMC combined company strategy, especially since EMC has its own cloud service, i.e. Virtustream.”
But how will Dell Services customers be affected?
According to Nag, they could well benefit from a player like NTT that’s focused on IT services.
“NTT also acquired another services company, Keane, recently,” Nag says. “So this additional acquisition should provide Dell Services customers the confidence that they are being served by a company that is serious and focused on IT services as a whole.”