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By Jeremy Glaser | 09-21-2009 12:04 PM

Will Dell's Perot Splurge Be Worth It?

Morningstar analyst Rick Hanna's take on Dell's pricey purchase of Perot and expanded push into service offerings.

Jeremy Glaser: I'm Jeremy Glaser with Morningstar. The M&A wave continued this morning as Dell announced its intention to purchase Perot Systems for around $3.9 billion. Here to discuss the acquisition with me is Dell analyst Rick Hanna.

Rick Hanna: Hi, Jeremy.

Glaser: So, Rick, do you think that this fundamentally changes the story of Dell?

Hanna: No. What it does is it expands their services footprint. For some time they have been wanting to build out their services business [which has] a higher proportion of recurring revenue ... hardware tends to be more discretionary, so in this economic climate that falls.

So they kind of want to go into that push and emulate some of what HP and IBM have been doing in terms of expanding into services, but do it kind of with a unique twist, offer more modular services, not the wholesale run-your-data-center type. And so I think that Perot helps them in that regard, but it doesn't necessarily change the underlying competitive dynamics; it's just too small.

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