Dell doubles down on data centers, services

Those ubiquitous boxes of new Dell computers heading for federal agency desks might soon be harder to find as the company has announced plans to lessen its dependence on PCs and double the size of its data center and services business within the next three years.

Dell plans to “double the size” of its $16 billion data center and technology services business by shifting staff, increasing sales incentives, and buying more companies, company executives said Thursday, according to Bloomberg News.

The company also is moving more into services and smart phones, and releasing a tablet computer, the business news agency said.

Chief Executive Officer Michael Dell told analysts attending the company’s annual meeting Thursday in Austin, Texas, that 65 percent of Dell’s 96,000 employees work in “solutions,” including systems for corporate data centers and technology services, compared to 49 percent of its employees two years ago.

Services revenue has increased an average of 2.9 percent in Dell’s two most recent fiscal years, while sales of PCs, laptops, servers, storage devices and software have declined. Services accounted for 13 percent of revenue in the first quarter 2010, while about 55 percent came from desktop and mobile PCs.

Dell’s enterprise business might reach $30 billion by fiscal 2014, executives said.

But analysts said the only way to reach that target is through mergers and acquisitions. “You can’t do that organically,” Jayson Noland, a senior analyst at Robert W. Baird & Co. in San Francisco, told Bloomberg News.

Dell could make acquisitions in areas including security and systems-management software, Noland added.

Michael Dell said the company would continue to acquire vendors with strength in data centers and business computing, adding that “we haven’t ruled out any category” of acquisition target.

Dell might acquire companies that make data center software, provide technology services in specialized markets including health care, or produce networking equipment, Brian Gladden, Dell’s chief financial officer, told Bloomberg News.

Dell said in a June 24 statement that it expects 2011 operating income, excluding some costs, to rise as much as 23 percent this year. Revenue will jump as much as 19 percent from fiscal 2010 ended Jan. 29, when sales fell 13 percent to $52.9 billion.

Dell also has announced plans to cut more than 10,000 jobs and has outsourced production, shutting factories to save money, the business news agency said.

Dell Computer Corp., of Round Rock, Texas, ranks No. 11 on Washington Technology’s 2010 Top 100 list of the largest federal government prime contractors.