16% of Dell’s Stock is Managed Services, Printer Services Can Help it Grow

Dell (NASDAQ:DELL), known primarily for its PC business and competition with players like HP (NYSE:HPQ), has expressed a strong interest in venturing into the growing and lucrative managed print service business. With managed printer service, companies can outsource the ownership and maintenance of their printer infrastructure by paying companies like Dell a periodic fee for the printer equipment they use.

Managed printer service will help Dell’s clients to reduce costs as well as time spent on managing and storing huge volumes of data. We believe Dell’s venture into the printer services will be an additional growth driver to its managed services business that is currently focused primarily on desktop outsourcing. We estimate that the managed services business constitutes about 16% of the $14 Trefis price estimate for Dell’s stock.

Below we discuss how Dell’s managed service business for desktops will see slower growth in the future, and how the print service business can increase Dell’s growth in managed seats.

Dell’s Managed Desktops Service Growth Rate Will Slow Down

Dell provides desktop outsourcing and management services like data handling and security services, crisis management during system failures, and email management, along with hardware offerings for its enterprise clients. Managed services are an attractive choice for clients since they help reduce their total cost of ownership for hardware.

The boom in desktop shipments raised Dell’s managed service business quickly, reflected by Dell’s high growth rate in managed seats (the number of desktops that Dell manages for its clients).

We estimate that Dell’s managed seats increased from 1.3 million in 2005 to nearly 1.8 million in 2009.

However, desktop shipments are expected to decline in the future, and this can result in slower growth compared to the historical rates for Dell’s managed seats.

5% Upside To Dell’s Managed Seats in 2011 From Managed Print Service

Dell is likely to offer managed print services during the second half of 2010. If Dell’s existing managed services client base were to opt into Dell’s managed printer services, Dell could be about a 5% upside to the Trefis forecast of 1.8 million managed seats in 2011, or nearly 1.9 million managed seats, with about 100,000 of these attributable to managed printers.

You can modify our forecast above to see the impact on Dell’s stock price if its number of managed seats increases more than we estimate.

For additional forecasts and analysis, here is our complete model for Dell’s (DELL) stock.