Dell Beats Services Drum With $340M ASAP Deal

Dell is taking on rivals that for years portrayed it as little more than a computer hardware distributor, agreeing to acquire IT services and asset management software vendor ASAP Software for $340 million.

The ASAP deal comes less than a month after Dell--which had eschewed acquisitions for most of its 19-year history--agreed to buy infrastructure monitoring and automation vendor SilverBack Technologies, and less than a year after its deal for application management services company ACS. Dell's goal: Help customers take the pain out of desktop and server management without bringing in an army of consultants.

ASAP, a unit of Corporate Express, provides services and tools designed to help businesses manage their computing infrastructures and software. For instance, its eSmart suite automates IT inventory tracking and license compliance. On the services side, ASAP's Solution Engineers program gives customers access to experts in security, storage architectures, information management, and other business technology disciplines. Among SilverBack's offerings is a patch management automation tool that cuts time and labor needed for software maintenance. It also offers remote desktop management products.

Dell execs aren't giving interviews about the deals, but observers say they'll help the company compete with PC and server rival Hewlett-Packard, which is also getting more aggressive in software and services.

One of founder Michael Dell's priorities since retaking the reins of the company as CEO in January has been to add products and services that produce revenue beyond the initial PC or server sale, notes Brian Alexander, an analyst with investment bank Raymond James. "They can create greater customer stickiness and get greater share of wallet," Alexander says.

Dell in December brought in former EDS exec Steve Schuckenbrock to head the company's services business. Kevin Rollins, Dell's CEO before being pushed out by Michael Dell early this year, last week joined private equity firm Texas Pacific Group as a technology market adviser.

Dell is counting on the services moves to yield more customer wins like Safety-Kleen. In addition to buying Dell PCs and servers, the environmental services company recently handed over its help desk management to Dell, as well as IT asset management. Dell also helped Safety-Kleen migrate its outsourced e-mail system back in-house.

Dell is becoming more of a channel "solutions provider," Alexander says, noting that the company isn't looking to take over customers' entire IT departments à la IBM Global Services.

IN THE GREEN
Its moves appear to be paying off. Dell's first-quarter services revenue increased 27% compared with the year-earlier quarter to $1.4 billion. Its software and peripherals revenue climbed 10% to $2.2 billion. Software accounts for about 16% of Dell's total revenue, while services accounts for about 9%.

That could increase: Dell is beefing up its services capabilities as many of its customers prepare to upgrade their desktops and servers to Windows Vista and Windows Server 2008.

Dell is acquiring ASAP relatively cheaply. ASAP's 2006 revenue was about $1.1 billion, meaning that Dell is paying a revenue multiple of just 0.31. By contrast, HP last month agreed to buy data center automation software company Opsware for $1.6 billion, paying a revenue multiple of 16. That disparity indicates that ASAP's profit margins are much thinner, Alexander says, "but there's revenue growth potential."