The Services: Dell Buys Perot Systems

There is an acquisition announced on Monday, and the acquisition is the services: the $3.9 billion that Dell promised for Perot Systems, the $30 per share in cash, the premium of roughly 68 percent. The acquisition is the confession: the personal computer that has become a commodity, the hardware that cannot carry the margins, the services that must come next. The questions began on Monday: whether the price was too high, whether the services would lift the margins. The acquisition is the September 2009 story, and the story is the lesson: the hardware that is fading, the services that are rising, the chain that Dell intends to climb.

The Services is the subject of this article: what Dell announced on Monday, who built Perot Systems, why the services are the future of the hardware makers, and what the $3.9 billion acquisition means for the industry.

1. The Announcement on Monday

The announcement is the news, and the news is the Monday: the September 21 statement from Dell, the agreement to acquire Perot Systems, the consideration of $30 per share in cash, the total of about $3.9 billion. The announcement is the report: the premium of roughly 68 percent over the closing price, the price that made the market stop, the number that changed the conversation. The announcement is the moment: the PC maker that reached for services, the services firm that was the prize, the deal that the analysts began to dissect that day, the reports that began that hour.

The announcement is also the week: the days since Monday morning, the questions that have not been answered, the deal that has to close, the calendar that belongs to Dell. The announcement is the September 2009 context: the Dell that was losing ground in PCs, the Perot Systems that was strong in services, the match that was made, the reasons that were given, the doubts that were voiced. The announcement on Monday was the beginning, and the beginning was the bet: the $3.9 billion that will be watched, the services that will be tested, the industry that will be changed.

2. The Perot Name

The name is the history, and the history is Perot: the Ross Perot who founded EDS in 1962, who sold it to General Motors, who came back with Perot Systems in 1988. The name is the legend: the billionaire who built the services industry, the entrepreneur who started again from nothing, the founder who no longer runs the company day to day. The name is the continuity: the services business that bears the founder's name, the twenty one years of building, the firm that grew into a company of some 23,000 employees, the reminder that the services made the fortune.

The company is the present, and the present is the services: the Perot Systems that runs the data centers, that manages the applications, that serves the hospitals and the agencies. The company is the strength: the healthcare IT that was the crown jewel, the government services that were the backbone, the contracts that brought the recurring revenue. The company is the target: the services firm that Dell chose, the price of $30 per share, the premium that Dell offered, the business that the Monday announcement would bring into the Dell fold, the deal that the market priced at $3.9 billion.

3. The Services Business

The services are the product, and the product is the work: the data centers that are run, the applications that are managed, the networks that are watched, the desks that are staffed. The services are the contracts: the multi year agreements, the monthly fees, the recurring revenue that the hardware makers envy. The services are the margins: the steady income that lifts the bottom line, the business that does not depend on the next quarter's box shipments, the model that the PC maker wants, the reason that Dell paid the premium, the answer that was announced on Monday, the deal that was made.

The services are also the change, and the change is the food chain: the hardware that sits at the bottom, the software that sits above it, the services that sit at the top. The services are the climb: the Dell that wants to move up, the Perot Systems that already lives up there, the deal that bridges the distance. The services are the promise: the chief executive who wanted the margins, the Michael Dell who made the call, the strategy that the Monday announcement made public, the direction that the industry will now watch, the services that the rivals must answer.

4. The Buyer

The buyer is the company, and the company is Dell: the PC maker that defined the direct model, the name that the 1990s built, the business that the 2000s squeezed. The buyer is the problem: the personal computer that became a commodity, the prices that kept falling, the margins that kept shrinking, the growth that moved elsewhere. The buyer is the strategy: the services that would lift the margins, the recurring revenue that would steady the ship, the deal that would change the mix, the $3.9 billion bet that was placed on Monday, the move that the market read that day.

The buyer is also the pressure, and the pressure is the market: the Dell that was losing share to HP in PCs, the Dell that was losing ground to the Asian manufacturers, the lead that was slipping away. The buyer is the recession: the hardware sales that the crisis squeezed, the budgets that were cut, the shelves that stayed full, the buyers who stayed away. The buyer is the response: the services purchase, the Monday announcement, the move that answered the pressure, the decision that the industry will watch, the answer that the quarter demanded, the bet that the year will test.

5. The IBM Model

The model is the blueprint, and the blueprint is IBM: the hardware giant that turned itself into a services company, the transformation that every hardware maker studied, the shift that the industry watched. The model is the evidence: the IBM that sold its PC business to Lenovo in 2005, the IBM that kept the services, the IBM that the market rewarded. The model is the lesson: the hardware that could be shed, the services that could carry the company, the path that Dell now intends to follow, the proof that the services business works, the change that the buyers demanded.

The model is also the timing, and the timing is 2009: the IBM that shifted years ago, the Dell that is making the shift now, the decade that separated them. The model is the comparison: the IBM services that became the industry standard, the Perot Systems that Dell is buying, the scale that the deal brings. The model is the distance: the hardware to solutions move, the food chain that Dell climbs, the transformation that will take years, the Monday step that begins the climb, the route that the industry expects Dell to follow, the decade that will tell the story.

6. The Services Arms Race

The race is the rivalry, and the rivalry is the services: the IBM that built the business, the HP that bought EDS in 2008, the Dell that answered on Monday. The race is the stakes: the multi year contracts, the enterprise accounts, the recurring revenue, the future of the hardware giants. The race is the escalation: the HP deal of last year, the Dell deal of this week, the services that every PC maker now needs, the arms race the industry calls it, the reason for the $3.9 billion, the pattern that keeps repeating, the price that keeps rising, the stakes that keep growing.

The race is also the position, and the position is the field: the IBM that leads the services, the HP that bought its way in, the Dell that is buying its way in now, the rivals that circle the same accounts. The race is the logic: the services that reward the big, the scale that wins the contracts, the size that Dell gains with Perot Systems. The race is the September 2009 reading: the three giants, the same goal, the deals that keep coming, the field that keeps shrinking, the week's story, the race that the year will now judge.

7. The Healthcare and Government Bet

The bet is the strength, and the strength is the focus: the Perot Systems that built its business in healthcare IT, the Perot Systems that served the government, the niches that the buyers prize. The bet is the contracts: the hospitals that run on the software, the agencies that depend on the services, the clients who stay. The bet is the steady money: the government budgets that pay on time, the healthcare systems that renew the deals, the recurring revenue that Dell is buying, the reason for the premium, the value that the buyer sees, the bet that the market read.

The bet is also the timing, and the timing is the moment: the healthcare industry that was turning to technology, the government that was the reliable customer, the services that were in demand. The bet is the fit: the Perot Systems strengths that matched the Dell strategy, the healthcare IT that came with the deal, the government work that came with it. The bet is the future: the services that Dell will sell, the accounts that Perot Systems brings, the combination the Monday announcement promised, the growth that the buyer expects, the hope that the deal carries, the year that will tell.

8. The Lesson

The lesson is the shift, and the shift is the services: the hardware that was once the center, that became the commodity, that is now the entry to something bigger. The lesson is the margin: the boxes that made pennies, the services that make the steady income, the recurring revenue that the market rewards. The lesson is the direction: the PC maker that is becoming a services company, the food chain that is being climbed, the Monday deal that shows the way, the change that defines the year, the shift that the decade will remember, the deal that the market priced.

The lesson is also the bet: the Dell that staked its future, the $3.9 billion that were placed, the services that must deliver, the recurring revenue that must pay, the promise to keep. The lesson is the September 2009 story, and the story is the lesson: the announcement on Monday, the Perot name, the services that became the prize, the hardware that became the commodity, the deal that changed the conversation. The acquisition is the beginning, and the beginning is the year: the question that the industry will answer, the services that will be watched, the food chain that Dell will climb.

# The Services: Dell Buys Perot Systems