Perot E-health Push Could Prove Profitable for Dell

Dell's Perot Systems buy is set to close just as federal spending season begins.

Perot Systems Corp.'s focus on the health care industry could prove to be an immediate boon for Dell Inc., which late last month agreed to buy the Plano, Texas-based IT services provider for $3.9 billion in cash.

Perot has created a strong health care services operation that's now in a position to gain a good chunk of the $36 billion the federal government is poised to spend on health information exchange projects. The funding is part of the $787 billion American Recovery and Reinvestment Act of 2009 passed by Congress in February.

Health care projects accounted for nearly half of Perot's $2.8 billion in revenue last year, the company said.

Dell said it hopes to complete the acquisition not long after the Oct. 1 start of the federal fiscal year, when government agencies will begin spending the money appropriated for e-health projects in earnest. The demand for help in implementing new health care IT projects should come quickly, because the stimulus bill requires that health care providers start upgrading electronic health systems by 2015 or face federal penalties.

Shortly before the acquisition was announced, Harry Greenspun, chief medical officer in Perot's health care group, told investors at an industry conference that the government's move to boost spending on e-health systems provides enormous opportunities to IT services companies. "Most hospitals [and] most physicians' offices are very immature in their adoption of technology," he said.

Greenspun noted that Dell and Perot already jointly offer a software-as-a-service system that delivers electronic records to virtual desktops, under an agreement the two companies announced in April.

Analysts have said that the deal should make Dell more competitive with top hardware makers like IBM and Hewlett-Packard Co., which both have massive services operations.

Peter Bendor-Samuel, CEO of Everest Group, a Dallas-based consulting firm, predicted that Perot Systems will quickly provide Dell's services business with more credibility among large users. "It both significantly improves their delivery capability and tremendously improves their credibility," he said.

Bendor-Samuel agreed that Perot's health care focus should give Dell a boost, but he noted that the PC vendor is interested mostly in gaining access to more large customers. "It's great to be a dominant player in the fastest-growing segment of the economy, but I view that as a nice thing to have," he said.

Dane Anderson, an analyst at Gartner Inc., said the deal shows only that Dell is finally pursuing a broad services strategy. Dell's support operation has traditionally focused on providing services only for its own products. It has not offered broad consulting and integration services sought by large users, Anderson added.

"The opportunity in the nearest term is to bring more capabilities to the table for the Dell installed base," he said.

During a conference call announcing the acquisition, Dell Chairman and CEO Michael Dell called the move "the right acquisition" for his company, and he said that the two Texas-based businesses share several similar characteristics. "Our products, services and structures are overwhelmingly complementary," he said.

Once the deal closes, Perot will become Dell's global services delivery division. It will be headed by Perot CEO Peter Altabef.

Michael Dell said he "sees an opportunity" to cut the combined company's estimated $4 billion in costs by 6% to 8%.

Peter Sayer of the IDG News Service contributed to this story.

Copyright © 2009 IDG Communications, Inc.

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