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http://www.nytimes.com/aponline/2009/09/21/technology/AP-US-Dell-Perot-Systems.html?ref=business
Summary:
Dell has agreed to buy Perot Systems Corporation, an Information-Technology Services company, for approx. $US 3.9 Billion. The reason is because Dell wants to expand beyond their computers business. Moreover, Dell thinks this decision will help Dell to have more potential customers by expanding their own IT services offerings for businesses. After this decision was made, Dell's share fell by 4.7 % to $15.9 in premarketing trading, while Petrot's stock shot up by 66% to $29.70.
(Dell offers $30/share for Perot's 121 million common shares, which adds up to$ 3.9 Billion)
Topics from Syllabus:
1.7 Growth and Evolution
3.4 Budgeting
Applying Business Theory to the Article:
Evidences in this article showed that Dell is undergoing External (or inorganic) Growth. The type of inorganic growth is acquisitions because Dell bought a lot of Petrot's shares. In this case, Dell acts as the white knight of Petrot because it appears to be a friendly bidder. Dell sells computers products while Petrot sells IT services, which appears that the two companies are not rivalries.
The type of integration that occur in this acquisition is Vertical Integration. Vertical Integration takes place 'between businesses that are different stages of production' (copied from business text book). Dell is the secondary industry by selling computers products while Petrot should be the tertiary industry by providing IT services. This type of strategy benefits Dell from having a greater market power because they have access to better IT service, which satisfies more customers' needs and wants. However, a disadvantage to this decision might be redundancies of staff members. Dell will unemploy some employees and this action will create stress among the employees. Also, Dell might have to reorganize their own organizational and pay structures, which needs extra costs and time.
Guys, thx for reading and feel free to comment.
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Cool Article. I see Petrot is benefiting from merging with Dell. However, have you also considered the disadvantages of the merger for Petrot, such as dilution of control? You might also want to mention what external factors forced Dell to expand its product range. Technological advances made laptop more popular than PC (just look at our school!), and that hurt PC makers such as Dell heavily, don't you think? Anyways, it is great that you included a topic from Unit 3.4, because we had just covered it in class. Keep up the good work!
ReplyDeleteHello Johnny,
ReplyDeleteNeat article.
First I would like to respond to Jeffrey Lau’s comment on “technological advances made laptop more popular than PC”. Although this is true, we could turn this disadvantage for Dell to an advantage. If we think about it, Dell continues to manufacture both budget and high end laptops for its consumers, and realistically it has diversified from what it used to make, specifically desktop computers. Now that net books are becoming ever more popular, there is less need for the overall larger and superfluous functions of laptops meaning most manufacturers should consider driving their product range towards netbooks. This of course, is evident with Hewlett Packard because as mentioned in the news article the company seems to be “reaching out beyond PCs”.
However the question I want to ask is, why would Dell pursue expanding their IT services by integrating the abilities of Petrot Systems with their market of personal computers?
I would like to answer this question as I have very strong opinions, yet I would also like to hear about your own comments. Considering Dell has mainstreamed in manufacturing for PCs and Laptops for many years, it is not surprising to see why they would like offer tertiary industry services to its customers. Like the article, its overall aim is to provide convenience for people interested in purchasing their products and seeking “multiple technology needs”. Dell definitely has its own flaws and it is possible that their original IT department is rather weak. It is definitely an attractive option in both the manufacturer’s perspective as the integration can bring about the possibility of greater market share, flexibility and also benefits to consumers such as purchasing hardware that is accompanied with better IT technology.
However, I do not agree to your point of redundancies of staff members as a result of their integration. I feel that Dell will continue to keep its current workforce, and perhaps shed some of the existing IT resources to the manufacturing process. Perhaps the merge with Petrot Systems will bring about a more advanced IT department who will be much more professional in this area. As for the decrease in shares, this is perhaps a preliminary reaction from the market due to unfamiliarity with the new merge but the problem should ease up as time allows consumers to be aware and familiar with the new changes.
Thanks a lot, looking forward to hearing from you soon.
Brian
In response to the sharp decrease that Dell faced in its stock prices, perhaps some preliminary advertising prior to the transition with Perot Systems would have been advisable. Equally, more in depth research into customer needs and wants might have helped to smooth the road out for Dell. It will be interesting to see how competition with Mac will play into the equation too, since Mac has done a lot of advertising and their programs are extremely user-friendly. Dell may wish to focus on business men/women, leaving Mac to target a more general population, in order to decrease the amount of direct competition since Mac already has an extremely solid foundation in this regard.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteBrian said...
ReplyDeleteHowever, the question I want to ask is, why would Dell pursue expanding their IT services by integrating the abilities of Petrot Systems with their market of personal computers?
In addition to what Brian said, I'd like to add that the acquisition of Perot Systems is also a first step in attaining a better international presence. Dell is not only relatively weak in some of its services (taking Brian's opinion from before) but in no way has a international presence like its competitors. Think about it, how often do you see a Dell (in Hong Kong) as opposed to a Mac or HP, companies which seem to be retaining its profits. Not only this, very few retailers and stores even carry its products. Perot Systems on the other hand, may only have a slightly better presence having offices in several places across the world, but offers a decent service that has already been introduced into the foreign market.
Also, Dell's acquisition of Perot System simply gives it a fighting chance outside its safe zones (i.e. the U.S.) As Dell being introduced to a new market means that it has to at least be at par with competitors where companies like Hewlett Packard (HP) have both good IT services. So in my opinion it'll have to better globalize and possibly change its market plan to truly increase its profits and market share.
I'd like to hear other views though, there may be some info that could contradict my whole opinion.
oh and cool article Johnny.