Business Services Offerings Worth 20% of Dell’s Stock

Dell (NASDAQ:DELL) competes with personal computer manufacturers like HP (NYSE:HPQ), Apple (NASDAQ:AAPL), Acer (TPE:2353) and Toshiba, as well as IBM (NYSE:IBM) and others for IT services. Over the years, Dell has increasingly focused on expanding its revenues from consulting services such as infrastructure consulting and support services among others. In 2010, Dell witnessed an increase of $2 billion in its services revenues driven primarily by the Perot acquisition.

We currently maintain a $22.39 price estimate for Dell’s stock, roughly 50% ahead of market price. Dell’s services business, which includes managed services and consulting as well as the more recently acquired Perot Systems, accounts for close to 20% of the firm’s equity value by our estimates.

Services Offered by Dell

Dell offers a number of managed, consulting and other services to its clients. Nearly half of Dell’s workforce, 43,000 in number, is employed in the services business. ^[1]

The interactive chart above depicts our forecasts for Dell’s managed seats, which represents the total number of PCs that Dell is responsible for managing. Companies often use outsourced service providers, such as Dell, to function as an IT department supporting the company’s desktops, notebooks, and printers. Dell’s managed services business focuses on desktop outsourcing.

The managed services offerings include:

1. Desktop Management services offer IT support for both hardware and software. Dell can remotely fix, reset, patch, or update a variety of client software applications. In addition, Dell has a dispersed team of IT personnel across the U.S. that can respond in person to address hardware issues.

2. Data Handling and Security services include archiving and managing large amounts of data, and keeping the data secure.

3. Crisis Management services offer rapid-response support during system failures. Dell also offers email management services that include email archiving and security.

Apart from managed services, Dell and Perot Systems also offer consulting and other services including:

1. Infrastructure Consulting provides consulting services to clients to help them evaluate and implement efficient IT infrastructure.

2. Deployment Services helps firms get their systems set up and deployed efficiently.

3. Asset Recovery and Recycling Services enable firms to get rid of their old IT infrastructure and equipment in the most efficient manner through resale, recycling, and redeployment.

4. Training Services provides hardware and software training to help clients’ employees get up-to-speed with the latest technologies.

5. Support Services include call centers for clients to contact when faced with PC, server, or storage problems.

See our full analysis and $22.39 price estimate for Dell’s stock

Services Business Expected to Grow

We conservatively estimate that Dell’s consulting and other services revenue will increase from $3.6 billion in 2010 to $4.1 billion by the end of our forecast period, driven by increased IT spending among corporations and the broader trend towards cloud computing. Demand for IT services is picking up as companies move to modernize their hardware and software systems to leverage new technology and improve productivity. Our projections imply a recovery off of the recent slowdown in IT spending.

You can drag the trend lines in the modifiable charts above to see how various scenarios for Dell’s consulting & other services revenues could affect the company’s stock value.

1. Dell’s Q4’11 Earnings Call Transcript, seekingalpha.com [↩]