Xerox's proposed $6.4 billion purchase of ACS is part of a trend of major tech vendors buying services companies to expand their offerings. It follows Hewlett-Packard's 2008 acquisition of EDS, and Dell's offer to buy Perot Systems. Analysts say Xerox's move to grow in the BPO business makes sense, particularly in light of competition from the likes of HP and Dell. However, there are questions about whether the trend will continue after the Xerox deal.
Xerox's proposed $6.4 billion acquisition of business process outsourcer
Affiliated Computer Services is the latest example of a major hardware vendor
looking to enlarge its business footprint by increasing its services
Xerox's ACS deal, announced Sept. 28,
comes just over a week after Dell
said it is buying Perot Systems for $3.9 billion, and a year after
Hewlett-Packard-which already had a formidable services unit-bought
EDS for $13.9 billion.
The three deals illustrate a trend of major companies looking to services as
a way to add recurring revenue sources and offer customers help at a time when
IT environments are growing in their complexity, according to analysts.
For some companies, it's also a way of keeping up with the competition, the
analysts said. HP, with the EDS acquisition,
is looking to create a services unit that can rival that of IBM,
according to Charles King, an analyst with Pund-IT Research. Dell, which has
slowly been building its services business over the past few years, saw Perot
Systems as a way to rapidly increase its services capabilities, King said.
For Xerox, ACS offers important BPO
capabilities that will enable Xerox's growing services business to compete with
the likes of HP and Dell, said Angele Boyd, an analyst with IDC.
"This is an expansion into an adjacent market that is very
strategically important to Xerox," Boyd said in an interview. "The
fit is good."
King said for many of these companies the goal is to have a business as
consistent as what IBM has created with its IBM
Global Services unit. Like most every other business in the IT sector, IGS has
seen its revenues slowed by the global recession over the past few quarters, he
However, as IT budgets have been cut back and sales of servers and other
products have taken a significant hit, IBM's
services business, with its multiyear contracts, "offers a certain amount
of flotation when you an iceberg," King said.
IBM executives reported in July that
total global services revenues dropped 12 percent for the second quarter. However,
income was up 23 percent, services signings were up 3 percent and strategic
outsourcing signings were up 38 percent. In addition, IBM
signed 17 services deals greater than $100 million. King described global
services as "a rock of stability for IBM."
In addition, IT continues to become more complex, particularly in the data
center, where such technologies as virtualization are seeing rapid adoption.
The replacing of hardware complexity with software complexity also is driving
the need for software services, he said.
King said it's unclear how much the trend will grow. Certainly, there are a
number of services companies-such as Unisys and CSC
(Computer Sciences Corp.)-that could be attractive. The question becomes, Who
would buy them? For the most part, those vendors that would make the most
sense-such as IBM, HP, Oracle (after its
acquisition of Sun Microsystems is complete), Dell and EMC-seem
to have services businesses that already are in pretty good shape. In addition,
as the stock market continues to move up, so will the price of those companies.