Is Dell the Next IBM?

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Dell (Nasdaq: DELL  ) , like Hewlett-Packard (NYSE: HPQ  ) before it, wants to be the next IBM (NYSE: IBM  ) . The leading PC maker this morning announced a $30-per-share cash bid for Perot Systems (NYSE: PER  ) , a 68% premium over Perot's Friday close.

Perot, which produced $2.8 billion in 2008 revenue, competes with IBM, Accenture (NYSE: ACN  ) , and Hewlett-Packard's EDS business unit for large, technology-driven services contracts. IBM has done well in this area by combining technology sales with consulting gigs. HP has since entered the business via EDS. Now Dell is buying services strength with Perot.

Shares of Dell were down nearly 4% in early trading, leaving CEOs Michael Dell and Ross Perot -- a one-time presidential candidate and favorite target of comedian Dana Carvey -- to defend a deal to skeptical shareholders. Michael Dell seems happy to do so.

"We consider Perot Systems to be a premium asset with great people that enhances our opportunities for immediate and long-term growth," Dell said in a press release. He continued:

This significantly expands Dell's enterprise-solutions capabilities and makes Perot Systems strengths available to even more customers around the world. There will be efficiencies from combining the companies, but the acquisition makes such great sense because of the obvious ways our businesses complement each other. [Emphasis added.]

Which obvious ways, you ask? That's not clear from the press release. There's no data about combined accounts or known synergies, such as how often Perot consultants recommend Dell's PCs and servers.

"Obvious" instead appears to refer to a simple axiom. To paraphrase a conversation that probably occurred before a contract was signed: "Dell sells services, Perot sells services -- why don't we sell services together? Why should IBM and HP have all the fun?"

Perhaps surface-level synergy is enough. Perhaps Dell will realize extreme value in fiscal 2012, when this deal becomes accretive to GAAP earnings. I still return to a simple thought: If everyone wants to be IBM, why not just own IBM? I have for years, and I'm planning to hold for many more.

But I've had my say. Now it's your turn to weigh in. Can Dell become the next IBM, or is this a desperate move by a desperate follower? Please take a moment to vote in the poll below, and then leave a comment explaining your rationale.

Dell and Accenture are Inside Value picks. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is analyst for our Rule Breakers service, and he owned shares of IBM at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is tired of the jibber-jabber.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 21, 2009, at 6:48 PM, prginww wrote:

    a bad move from a desperate company such as krafts foolish recent bid for cadbury..

  • Report this Comment On September 22, 2009, at 5:47 AM, prginww wrote:

    Typically during the fourth quarter of seasons end, Dell prices have followed an upward trend towards large capital gains. Such achievement is usually attributed to strong fundamentals which spawn from the sales from the company's popularized notebook and desktop computers along with accessories during the back-to-school months of August through October. With such a seasonal increase in revenue and profit, transcending to earnings, the outlook for Dell shares characteristically remain strong through the fall and winter months. The last five years have proven to provide such evidence as shown through technical assistance. Last year during this time period, the stock increased nearly 10%, the year prior to that: 20%, during 4th quarter 2003: 5%, 4th quarter 2002: 15%, and during the 4th quarter of 2001, when the price of Dell was at a number similar to this year, the price went up nearly 100% for the duration of that period. One of the key fundamentals in making profits with equities is to follow trends, and Dell provides a positive inclination which will inevitably yield high capital gains.


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