Dell Services Top $1 Billion In Fourth Quarter

Dell's effort to strengthen its market position as a provider of enterprise-class information technology has been bolstered by its growing services efforts, which for the first time exceeded $1 billion in revenue in its recently concluded fourth quarter.

"This milestone is an important reflection of customer confidence in Dell services," says Steve Meyer, VP of marketing for Dell services. "We think this is another key example of the company's evolution into a diversified IT provider."

For its fiscal 2005 fourth quarter, which ended Jan. 28, the company reported a 32% jump in services-related revenue compared to one year earlier to more than $1 billion, Meyer says.

And according to a recently published Gartner study, Dell was the leading supplier of hardware services in the United States in 2003, the most recent year that complete data was available, and was the fourth largest services provider worldwide, trailing Hewlett-Packard, IBM, and Xerox, respectively.

"Dell has done a wonderful job of learning how to attach support to the box as it goes out the door," says Ron Silliman, an analyst with Gartner. "In fact, competitors like IBM and HP have learned from Dell in the last few years about how you can present services as a feature of the box, especially when you are selling direct." Dell's service offerings are generally "very close to the box," and are not the more "horizontal outsourcing types of services you might get from an IBM or Accenture," he says.

Trying to close the gap against competitors worldwide may prove more difficult than the success Dell has enjoyed in growing its services business in the United States, Silliman says. The direct-sales approach doesn't work with European businesses as well as it does in the United States. And in some areas, such as China, Dell is not even the low-cost provider, a traditional strength for the company, he says.

"It will take them longer to make progress in some of these geographies, and it's certainly not assured that they are going to be able to repeat the level of success they've had in the U.S.," Silliman says.

In an effort to accelerate its worldwide services efforts, Dell in the past two years has opened what it calls Enterprise Command Centers in China and Ireland and, in February, in Japan. The centers, including one at Dell's headquarters in Round Rock, Texas, are designed to provide support for server and storage customers.

"The centers are reflective of the globalization of technology in general, and the global approach we are taking to our services business," Meyer says.

Meyer says the company has not disclosed its goal for total service revenue for this year, "but we continue to anticipate that the services business will grow at a multiple of the rest of Dell."

Dell's services business in the past "has been one of our best kept secrets," he says, but "in today's marketplace, customers define success less and less in terms of individual components of hardware or software, and more and more in terms of the value those components deliver. Services are a tremendous part of delivering that value."