The New York Times [registration] suggests that Dell Inc. (NASDAQ: DELL) plans a big push into computer services as part of its makeover. Its big scoop? Dell hopes to go from $5 billion to $20 billion in services revenue by 2015.
This is actually more of a change than it might appear. That's because CEO Michael Dell recruited Stephen F. Schuckenbrock last December from Electronic Data Systems Inc. (NYSE: EDS) to lead its services business, which currently gets most of its revenue from technical support and maintenance on Dell machines.
But to reach the $20 billion target, Schuckenbrock will need to build Dell into more of a computer services powerhouse. If Dell hits its target, that $20 billion will still represent 40% of International Business Machine's (NYSE: IBM) $50 billion in estimated 2007 services revenue. And the gross margins on services business, at 30% for IBM, could add a significant amount to Dell which earns a relatively paltry 18% gross margin.
If Dell can pull off this big rise in services revenue, it could make me want to look at something I have not thought about in years -- buying Dell stock.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the stocks mentioned.
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Reader Comments (Page 1 of 1)
9-09-2007 @ 8:18AM
D Allison said...
I don't see it. Dell will have to focus on PC services - taking away marketshare from other PC low end service providers. To think that Dell could move into IBM Corporate service provider space - seems a stretch. I do think there is a lot Dell can do in the PC services space, but in that area - profit margins will remain in the 17-24%.
9-09-2007 @ 11:15AM
- 61857 said...
. . . Is Dell (DELL) breathing down IBM's (IBM) neck? IBM is clueless, they think its all about typewriters.
9-09-2007 @ 12:06PM
Karen said...
Food for thought. I own IBM stock and it has been doing pretty well. I own a Dell computer and it is a real pain. I don't plan on buying another one. If there service sector operates as poorly as my computer, IBM has nothing to worry about.
9-09-2007 @ 4:29PM
leigh olavar said...
dell is great. only those who are lazy doesnt want to troubleshoot with them over the phone and the service was great.