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By Nick Wakeman

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Nick Wakeman

Did NMCI re-compete force Dell to make services play?

A lot of what I’ve written about Dell’s acquisition of Perot Systems has dealt with the importance of services in today’s government market, and the challenge of combining a services business with a product business.

One reader, who asked not to be named, sent me some thoughts on a different angle to the story.

He wrote:

"Most of the media and pundits have focused on the commercial health care market as a main driver for the purchase, which is true. But there may be more to the deal.

It goes something like this: HP bought EDS. EDS has the NMCI [Navy Marine Corps Intranet] contract where perhaps $1 billion plus of Dell equipment has been sold to the Navy.

NMCI is coming up for re-compete soon. If HP wins, they will sell their equipment into NMCI.

Dell sees the HP buy as a big threat to a large current customer and future refresh business, because every three years, you need to replace hardware.

So, Dell buys Perot as both an offensive and defensive move to perhaps compete using Perot as a prime to go against the HP/EDS threat to Dell business."

Back to me now:

I think this is a good theory. Dell has to be looking for ways to protect itself against such a substantial threat to its business.

One thing this comment stirred in my mind is how complex and multifaceted deals are of this scale.

If you are spending a few billion, you need more than one reason to make the acquisition.

You can’t have just one reason to make an acquisition of this size.

As another commenter said, "You need to make sure 1 plus 1 equals 3."

Posted by Nick Wakeman on Oct 02, 2009 at 9:53 AM

Reader Comments

Mon, Oct 5, 2009

Dell isn't stupid. All the big IT services and hardware firms know commercial markets are going to take some time to recover, so selling to government is the only way to keep revenues and profits growing. The question is whether the government will be able to take advantage of the coming competitions.

Mon, Oct 5, 2009 Navy Brat Norfolk, VA

One quick note on NMCI: the Navy does not own ONE PIECE of the equipment that is deployed as part of NMCI. HP/EDS is actually the owner of all $1 billion worth of Dell equipment... as well as all the Cisco gear, all the Microsoft licenses, etc. If the DoN wants to keep the equipment when the NMCI contract ends, then it has to purchase all of those assets from EDS. Of course, the assets depreciate over time, so it won't be a payout for the original values, but this is a significant part of transitioning from NMCI to the Next Generation Enterprise Network. It may be that if HP/EDS does not win NGEN, the DoN requires that these assets must be sold to the winning bidder, after all of the inevitable protests are resolved. But I think it likelier, given the shape that NGEN is taking, that the DoN will want to own those PCs and switches and routers and software licenses and printers and firewalls and everything outright. But yeah, the Dell purchase of Perot Systems does seem a transparent and deliberate move to be able to compete with HP/EDS on major contacts like NGEN.

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