Reports that Dell is spending $3.9 billion to acquire Perot Systems are not much of surprise since HP’s one year report card on acquiring EDS (Electronic Data Systems) are getting high marks. When HP acquired EDS in August 2008 for $13.9 billion there was some question about whether HP could transform EDS into a profitable outsourcing business, and now HP reports great process. HP eliminated about 25,000 EDS employees and cut salaries by more than 20%, and now report “operating profit margin on services hit 13.8 percent, the highest in a decade.” As well HP has retained 199 out of 200 of EDS’ top accounts. Now the EDS name has been replaced with a new name – HP Enterprise Services.
Dell’s Gamble on Perot Systems
Given Perot Systems’ strength in electronic health records Dell’s purchase is very timely since the “government is pouring $19 billion over the next five years into technology to help doctors and hospitals digitize medical records.” Currently Perot Systems provides services to over 1,000 hospitals and is in the business of automating patient records. Ironically enough Dell’s stock price fell on the announcement of the acquisition of Perot Systems, just as HP’s stock fell at the announcement of its purchase of EDS last year.
More Hardware Sales
Obviously HP and Dell can sell more hardware to their outsourcing customers, and the other major competitor in this space is none other than IBM! All three major hardware companies. But the irony here is that in 1962 Ross Perot started EDS after a successful career with IBM and created a new industry which today is known as outsourcing (and had various labels over the years including Facilities Management). EDS even merged with General Motors. However the GM merger did not last long and at the end Ross Perot left to start his new company, Perot Systems. So this market space has kept the same players for some time. One can image that Dell and HP will sell a great more hardware. Stay tuned to this market space.