Update: Dell, Philips cancel $700M IT services deal

IDG News Service - In a blow for Dell Inc., the company confirmed today that it has lost a services deal with electronics giant Philips Electronics NV that was valued at up to $700 million (see "Dell signs big desktop contract with Philips").

While Dell has worked with Philips for the past 12 months to provide hardware and managed desktop services to employees at Philips, "it was mutually agreed upon by both companies" to cancel the project, said Bob Kaufman, a Dell spokesman. The companies said they did not foresee a successful completion of the deal.

The contract, which was for a project called "Global Workplace," was canceled after its original goal -- creating a centralized desktop environment for Philips employees around the world -- was found to be the wrong approach, said Jason Otke, a spokesman for Amsterdam-based Philips. Since beginning the work in December 2004, both companies had reviewed the global workplace project looking for ways to make it better support end users, he said.

Ultimately, there were more questions than answers about what approach would work worldwide.
"Both parties had reached a conclusion that the project in its current form didn't guarantee success," Otke said. "Through the development work, it was concluded that the global one-size-fits-all strategy was not the ideal approach.
"The lesson from this is that we need to reflect the regional needs of our businesses," he said.
While Dell and Philips are ending this contract, he said, other deals between the two companies are unaffected.

Dell had been awarded a five-year contract with Philips in December 2004. The contract had called for Dell to manage desktop computers, printers, office networks and applications and to provide technical assistance for 75,000 employees at Philips.

Like other hardware makers, Dell has been experiencing a slowdown in growth of its core hardware business and is looking to boost revenue through services and to expand in markets outside of North America.

The company last week exceeded Wall Street revenue expectations when it announced fourth-quarter results. Revenue was $15.2 billion, a 13% increase over the year-earlier period. The consensus estimate from analysts polled by Thomson First Call had been for $14.8 billion in revenue.

Dell also said last week that it expects sales to grow only 6% to 9% in the first quarter of fiscal 2006, a forecast below analysts' estimates of 10% growth. The news caused Dell's stock to slip in after-hours trading and on Friday, when it closed at $30.38 on the Nasdaq Stock Market.

Computerworld's Todd R. Weiss contributed to this report.