Integrated computer companies providing hardware and software solutions seem destined to define the game in the IT space. Continued success of IBM with integration of its hardware business with custom solutions for its global services division, Dell’s $3.9 billion purchase of Perot Systems, and Xerox's acquisition of Affiliated Computer for $6.4 billion in the last month point the finger in this direction. The deals come as large technology companies expand into higher margin IT services to secure stable and recurring revenue as computer hardware becomes commoditized.

It’s starting to look like no one can afford to go without an IT services offering for long. First, IBM started to focus on services in 2004, the year 2008 saw HP buying the service provider EDS to further galvanize its position as a solutions provider and weaken its dependence on the hardware business, and now come the deals of Dell and Xerox. In fact, it is the larger presence in services that has helped IBM and HP fare better than Dell during the global recession. The Perot Systems buyout should help Dell de-risk its hardware business.

Analysts in the U.S. are talking about what will happen to companies such as CSC, Deloitte, and Lockheed Martin. Why is that no Indian IT services player seems to be in fray? The reason can be two fold; the Indian IT services firms still do the low value work and their only real value add is in cost arbitrage for which no one has to buy a company, it can be built from scratch, as the ramp up in the headcount of IBM global services and Accenture in India has shown. The second reason can be that investment bankers know from the past experiences that Indian IT services firms are not interested in being acquired, so no one bothers to even consider them.

In either case, it could be a blessing in disguise for the Indian IT services firms because all said and done, clients do want to work with a service provider who is not married to a particular hardware solutions. The Indian IT services firms can take this opportunity to go up in value add services, though the Indian IT services majors have been trying to do this for a while.


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