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THOUGH LOW, DELL SERVICES’ TOP-LINE GROWTH POST-PEROT INTEGRATION IS INLINE WITH IBM GS’ AND HP SERVICES’ GROWTH

Below is TBR’s commentary on Dell Services’ FY4Q11 (CY4Q10) results. Please feel free to use the content below, or call/email (erin.hichman@tbri.com, 603-758-1826) for additional commentary.

A big management change for Dell Services in 2011, a new president; however lackluster top-line growth is likely throughout the year

 

In January, Dell Services announced the consolidation of its Public and Large Enterprise business units into the Public-Large Enterprise business unit. In conjunction with the business unit consolidation efforts, Steve Schuckenbrock, who recently led the Large Enterprise business unit, and prior to that was CIO of Dell, will succeed Peter Altabef as president of Dell Services. TBR believes Schuckenbrock’s experience leading Dell’s Large Enterprise business unit will help drive synergies between Dell Services and the newly created Public-Large Enterprise business unit, which will be led by Paul Bell (previously president of Dell’s Public business unit). 

 

TBR believes the shift to a single business unit will allow Dell to eliminate redundancies and improve costs. In addition, we expect Dell to leverage the offerings and expertise from each segment to drive new business opportunities through cross selling initiatives and further integrate vertical capabilities.

 

However, the question remains whether Schuckenbrock can drive up Dell Services’ top-line growth, which barely achieved positive year-to-year results in 4Q10 at 1.1%. TBR notes that IBM Global Services’ year-to-year revenue growth has hovered around 2.0% for the past few quarters.  HP Services saw growth of 0.4% in 3Q10 and 1.0% in 2Q10 (as of press date, HP has not released). These considerations indicate that high-single digit growth, though likely desired, will not be realized by Dell Services in 2011.

 

 

Dell expands its cloud capabilities through further acquisitions

 

Acquisitions continue to drive Dell Services' portfolio expansion efforts to establish itself as a cloud leader. The SecureWorks acquisition, which closed in February, enhanced Dell’s IT-as-a-Service portfolio with additional security features, boosted its customer base and added over 700 employees from which Dell can enhance its own sales and R&D teams.  In addition, the December acquisition of InSite One added cloud-based medical archiving, storage and disaster recovery to Dell’s healthcare cloud portfolio.

 

To gain further traction in the cloud, TBR believes Dell will continue to invest in its capabilities and market itself as an end-to-end provider of cloud-related services. We believe Dell will gain a competitive advantage in the cloud world through more specific cloud offerings geared toward verticals, the SMB market and large enterprises, in addition to leveraging brand recognition.

 

 

Watch out HP and IBM, Dell is transforming itself into a stronger competitor

Dell continues to evolve from a commodity hardware vendor to a solution provider by highly leveraging acquisitions. The recent acquisition of SecureWorks took Dell one step closer to becoming a one-stop shop for customers looking for end-to-end solutions. However the larger acquisitions, such as Perot Systems and EqualLogic, have a greater impact on reshaping Dell from a high-volume PC and x86 server manufacturer into a provider of need-based, bundled solutions.

 

TBR believes that as acquisitions continue to make Dell Services portfolio more complete, competition will swell among Dell Services, HP Services and IBM Global Services as their respective solutions increasingly overlap.