HP leaves Dell with an EDS-shaped hole

Partner swap leaves Dell feeling at a loose end

Analysis Dell looks like being one of the losers after HP’s buy of EDS yesterday.

Well, apart from the staff who are likely to be axed, the EDS customers who will have to live through the integration of the two companies, and HP shareholders who have already seen a slide in the company’s shareprice since news of the $13.9bn deal broke.

It doesn’t seem that long ago that Dell and HP were scrapping for the top spot in the PC market, as if it really, really meant something. HP was distracted with its borging of Compaq, leaving the path open for Dell to pontificate about the brilliance of its model while delivering quarter after quarter of apparently gold-plated growth-fuelled results.

All the while, the Texas-based PC house shrugged off suggestions that it wasn’t really building that much expertise at the high-end, that its lack of a proper services organisation meant it couldn’t hope to be more than a box supplier for global corporates, and that its lack of a channel network meant that it would be geographically restricted.

Coulda, shoulda

Dell’s response was that it wanted to tie its services offerings to the box itself and it didn’t want to make a full dive into enterprise services. Though, as Endpoint principal analyst Roger Kay says: “That may be more a matter of making lemonade with lemons because building such organizations is hard.”

We’re sure Dell used to be pitched as possible buyer for EDS as the firm was going through its agonies in the first half of this decade. After all, they were both based in Texas, they didn’t overlap, and a tie-up would have given a cash-rich Dell a platform to become a full-service corporate IT giant in the mould of IBM. Hell, it wouldn’t even have had to worry about pissing off its channel, as it didn’t have one.

Sadly, a quick trawl through the archives doesn’t throw up any pages with this suggestion. All the same the companies did strike up a cosy friendship. Dell became part of EDS’s Agility alliance, under which the firms, together with the likes of Cisco, Microsoft and Sun, pledged to work together on R&D, procurement and customer projects. In 2006, former EDS chief operating officer Steve Schuckenbrock joined the PC firm to head up its services business.

But when it came to spending strategic amounts of cash, Dell never made the jump. It has spent the last few years buying up services bit niche players, but doesn’t give the impression of being anywhere near having a coherent services proposition. At the same time, its model is not quite the dependable money-making machine it used to be. It’s even had to swallow its pride and solicit dealers and retailers to sell its kit.

Dell of course is a major player in plain old hardware. It’s still number three by revenue in the crucial server market, and number two by units. Last year its growth rate by revenue was in double digits, ahead of both IBM and HP, and suggesting it was doing some higher value business. Its unit shipments came in at 6.2 per cent, compared to 16.6 per cent for HP. But HP now has the prospect of rekitting a stack of EDS datacentres, not to mention grabbing follow-through business on EDS’ services contracts.

IBM set the pattern 15 years ago when it started to place services above all else, eventually ditching much of its PC business and capping things off by swallowing PwC Consulting. HP, in its own Californian way, has been following a similar path, a small digression with Compaq apart. And, of course, HP seems much more wedded to its technology business.

Dell may well have good reasons to steer clear of EDS. It may have been wary of compromising EDS’ vendor independence – something that HP is going to have to talk its way out of now. And as other commentators have pointed out, Schuckenbrock presumably knows where all the bodies are buried in Plano.

But if Dell still wants to be a top flight player in IT, it surely has to get serious about buying in some services expertise. Or at least finding a new heavyweight services partner. And as Kay says, how many serious world class IT services players can you name?

Either way, Dell now no longer has the option of teaming up with the guys down the road. Oh, hang on, here’s one that’s based in Paris – step forward ATOS Origin! No, wait... that’s Paris, France, not Paris, Texas. Dammit. ®

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