London: Dell Inc., the world’s second-biggest maker of personal computers after Hewlett-Packard, wants to buy lean IT companies of the Indian school of outsourcing to improve its scale and credibility in services.
Dell makes almost 60% of its revenues from selling personal computers and has established a support business for corporate PC users. It now wants to expand its services business further into managing companies’ computer networks.
Steve Schuckenbrock, president of Dell’s large enterprise operations, said it was taking a different route from rivals HP and IBM by helping firms strip out costs, rather than selling them long consultancy and software contracts.
The company, which has $10 billion in cash and short-term investments, has said it wants to grow through acquisitions as well as organically, and Schuckenbrock said Dell could use some help in establishing a reputation for services.
“We think we know what we want to do but we don’t have enough scale and... credibility,” Schuckenbrock told Reuters in an interview. “There’s no question that we are interested in acquisitions to bring scale to our services business and to bring more credibility to us as a services company.”
Dell’s finance chief said last week demand from businesses large and small was still very weak and the US company faced a big, long-term challenge in its hardware business, where falling PC prices will put pressure on margins.
Schuckenbrock, also responsible for Dell’s operations in Europe, the West Asia and Africa, reiterated that the company saw a little confidence returning to the US market, although it was still too early to call, with Europe behind the United States in terms of stabilisation of IT spend.
The battle among industry giants is heating up with rivals such as HP and Cisco making large acquisitions or expanding into new business areas as they accelerate efforts to become one-stop storefronts for business customers.
But Schuckenbrock said Dell was unlikely to buy large companies, partly because they usually came with legacy systems and history that Dell would see as an encumbrance.
He said Dell admired companies such as Indian computer-services firms who have branched out into managing customers’ networks, after saturating much of the market for managing older business applications software.
“They created remote infrastructure management, they created optimised labour pools in optimised locations, and they had consulting on the front end. You’ll see us do the same things.”
“The kinds of companies who have that as their DNA are much more attractive to us than the big traditional outsourcing companies,” he said, adding such companies were to be found not only in India but also in the United States or Europe.
“We will continue to be acquisitive in consulting -- we’ve bought three or four small companies but we’d be thrilled to continue to pick up small and medium-sized companies in that space to extend our capacity,” he said.
“And from a managed services standpoint, a remote infrastructure management kind of footprint would be ideal.”
Dell reckons it can potentially reduce the proportion of IT budgets that customers spend on servicing hardware and software they already have to 50% from 70-80% currently. It has cut its own spending on this to 54% so far.
The company seeks to automate computer and network management as far as possible, drastically reduce the amount of software needed to manage infrastructure, and cut consultancy to a minimum.
“We had 800 and some odd software tools just managing Dell’s IT infrastructure. It’s crazy. Now we’re down to a few hundred. We’ll get it down to less than 100 and we will do all of that by pursuing the kinds of things I’m talking about,” he said.
“Every one of those has a licence fee, every one of those has a maintenance fee, every one of those has engineers who have to maintain it, they all have to be integrated. I mean, it’s just cost! And it’s unnecessary complexity.”