June 6, 2007 12:28 am

Dell plans purchases to build services

Michael Dell is planning a series of acquisitions to turn Dell into more of a computer services business, as he struggles to boost sales and margins at the world’s second-biggest personal computer maker.

Mr Dell, co-founder and chief executive, on Tuesday told the Financial Times that the company’s services business was growing faster than sales of computer equipment, and represented a “huge opportunity”.

“That growth will come not just from organic growth but also partnerships and acquisitions. We made a small acquisition in Scotland, which has worked out quite well, and I think you will see some more acquisitions to add capability to our services team,” he said.

The comments came days after Dell announced it was slashing 10 per cent of its workforce in a cost-cutting drive designed to help put the company back on track after a string of missteps.

“Michael Dell knows the company has got to change,” said Martin Reynolds, an analyst at Gartner. “[Using] services to sell hardware is something that makes a lot of sense for Dell.”

Services offered by Dell could include helping companies install new equipment and running an IT helpdesk for staff.

Mr Dell said only about $6bn of Dell’s $60bn annual revenues came from services.

Rivals such as Hewlett-Packard and IBM have spent the past several years building up their services businesses to serve the computing needs of big companies. Many companies find services attractive because they are more profitable than hardware sales.

Mr Reynolds said Dell was more likely to begin making small acquisitions to grow its existing services portfolio, rather than attempt the acquisition of a more specialised computer services company such as Accenture.

But Roger Kay, an analyst at Endpoint Technologies, said Dell might be interested in a bigger deal.

“In the past, Dell has wanted to remain lean and mean,” said Mr Kay. “Now they’re looking at it differently and saying: ‘We need to get this capability under our roof’.”

Dell said recently it would begin selling through Wal-Mart stores and third-party resellers in addition to its direct sales over the telephone and internet. Mr Dell also indicated that the company could be expanding its range of own-branded stores beyond two experimental US outlets.

Dell is also thought to be winding down a foray into Dell-branded televisions that began in 2003. The Bloomberg news service reported on Tuesday that Dell could stop selling its televisions as early as this month. A Dell spokesman would neither confirm nor deny the report.

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