Dell’s Consulting & Services – 13% of Stock Value and Growing

Dell’s (NASDAQ:DELL) revenues from consulting services such as infrastructure consulting, deployment services, asset recovery and recycling services, training services, and support services have been rising despite a small dip in 2008 due to the economic slowdown. As clients seek to improve their overall IT infrastructure and make processes more efficient, and as corporate spending resumes, we expect to see further growth in Dell’s consulting services going forward.

Dell competes with HP (NYSE:HPQ), IBM (NYSE:IBM), and Accenture (NYSE:ACN) in infrastructure consulting. We estimate that this division alone accounts for around 13% of Dell’s value and combined with Perot Systems totals 23% of Dell’s value – the largest independent division in our forecast. We currently have a Trefis price estimate of $19.25 for Dell’s stock, which is about 41% above the current market price of $13.65.

Discretionary Spending for Consulting Services

Infrastructure consulting, which entails providing consulting services to clients to help them evaluate and implement efficient IT infrastructure, is a discretionary part of spending that clients typically cut down on during a slowdown. Similar is the case with asset recovery and recycling services, as firms prefer to continue with old equipment to minimize spending.

Dell also helps firms get their systems set up quickly through its deployment services. Since this segment is again not business-critical, companies opt for cheaper vendors to do the same.

Growth Expected on Support Services

Consulting and other services revenue has increased from $1.6 billion in 2004 to $3.6 billion in 2010. ^[1] We expect this growth to continue, although at a slower rate, led by growth in support services segment. These services are indispensable to a business during a slowdown or otherwise. Support services are generally provided from cheaper offshore locations such as India and China, and hence we do not expect much decline in these services.

Member Forecast

While the baseline Trefis estimate indicates an increase in Dell’s consulting and other services revenues from $3.6 billion in 2011 to over $4 billion by the end of our forecast period, the Trefis community predicts an increase from almost $4 billion to $6 billion during the same period. The member estimates chip in around 2-3% to the Trefis price estimate for Dell’s stock.  You can modify these assumptions to make your own forecast.

Our complete analysis for Dell’s stock is here.

1. Estimated based on Dell Service revenues as reported by the company [↩]