Dell Looks at Services in Wake of HP-EDS Deal

Dell will continue to work with EDS, but now that the latter is an HP subsidiary, Dell's looking beyond its traditional services to the cloud.

When the news came that Hewlett-Packard would acquire Electronic Data Systems for more than $13 billion earlier this month, all eyes turned toward the looming services battle between HP and market leader IBM.

Then there's Dell.

For a number of years, Dell had been one of the main suppliers of PCs and other hardware through EDS in deals that usually involved large federal contracts, such as a 2000 agreement to supply servers, workstations and PCs to the Navy and Marine Corps for a total of $1.4 billion.

Now Dell and its customers are faced with new choices and possibilities in the wake of the EDS merger.

The HP and EDS deal comes at a time when Dell is looking to build out its services division as the company looks to move away from its image as a low-cost box maker into a more full-service IT provider. During its most recent annual earnings report, the company reported its services revenue hit $5.2 billion, a 4 percent increase from the previous year.

Steve Schuckenbrock, Dell's senior vice president for Global Services, believes that the company's services model is moving away from the traditional offerings that companies such as EDS supplied, toward a model that focuses more on creating ways to deliver software and services through a SAAS (software as a service) or cloud computing model.

"The other model [that Dell is looking at] is the more cloud-based, on-demand-oriented services and the ability for customers to take advantage of some pretty significant trends in the services space around remote infrastructure management and cloud-based services, and that's clearly what we are doing," said Schuckenbrock, who was previously an executive vice president of services at EDS.

Despite its recent interest in services,Dell is far behind both HP-$17 billion-and IBM-$54 billion-in a market that Gartner estimated as worth $740 billion in revenue in 2007.

In EDS, Dell Could Lose a Product Pipeline

With those types of numbers, Dell's relationship with EDS still matters a great deal to the company and its core business of selling PCs and servers.

In his view, Schuckenbrock believes that EDS customers will ultimately decide what type of hardware they want for their businesses even with new HP ownership.

Lindy Hanson, an analyst with Technology Business Research, believes that Dell's relationship with EDS had not been as strong as in the past. In the last few years, EDS had turned to other hardware vendors, including HP, to provide a different source of desktops and notebooks for customers.