Dell's tech services may impact IT firms' margins
By siliconindia   |   Friday, 18 December 2009, 23:32 IST   |    2 Comments
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Dell's tech services may impact IT firms' margins
New Delhi: The profit margins of Indian companies such as TCS, Infosys Technologies, Wipro and HCL Technologies, are expected to come under pressure from the new technology services unit set up by Dell after its acquisition of Perot Systems. Analysts say that the company has planned to focus mainly on midsized enterprises for contracts worth $20-50 million, the sweet spot for major Indian tech firms, and possibly drive down prices. "Dell might do to services what it has done to hardware by direct selling bring down prices of services and put margins under pressure," said Diptarup Chakraborti, Principal Research Analyst at Gartner. Dell Services, launched yesterday, has been formed by integrating Dell's services business with Perot Systems, which was acquired for $3.9 billion in September. The combined services entity has already pitched for 88 contracts, most of them in the $20-50 million range. Peter Altabef, President of Dell Services said, "Small and medium businesses are underserved and we will go after them with customized services. Part of our strategy is to increase services offering from remote locations (like India). The Perot integration brings us lot of additional capability and cross-selling opportunity." The $7.5 billion Dell Services has about 50 percent of its 42,000 staff in India. Citing an example of cross-selling, Altabef said that a manufacturing company which was a Dell hardware client is also now a customer for which it undertakes SAP consulting, expertise it got from the Perot acquisition. "We closed the deal in less than 10 days," added Altabef. Few days ago, the company won 90-crore contract from Max Healthcare. Among the services that Dell Services will provide, includes enhanced support, managed IT services, business process services, IT and business consulting , as well as applications development, maintenance and testing. The company is also likely to focus on the healthcare, manufacturing and government businesses. Suresh Vaswani, Joint CEO of Wipro said, "We have been competing with them before and there could be some change in market strategy. We just have to stick to our value proposition." Dell has an edge over other services providers as it offers complete hardware and software services capability, matched only by companies like HP and IBM. "Dell will shake up the market and create services at multiple price points. Dell will also expand the market with its hardware-cum services offering as a single window capability to mid-market is not available . Competition from Dell will impact profitability and pricing," said Raman Roy, Chairman and Managing Director, Quatrro BPO Solutions . Dell Services' plan to target the mid-market segment also helps the new player differentiate from bigger rivals like IBM and Accenture. Many of the mid-market customers are not interested in doing business with the large outsourcing firms.

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