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Dell Sells IT Services Unit For $3 Billion

Dell struck a deal to sell its IT services unit to Japan's NTT Data, which marks its first divestiture deal to raise cash for its EMC transaction.
Dell, EMC Deal: 10 Things IT Needs To Know
Dell, EMC Deal: 10 Things IT Needs To Know
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On Monday, March 28, Dell announced it is selling its IT services unit to NTT Data of Japan for more than $3 billion.

The sale of Dell Services marks the first and largest transaction the computer maker has taken on since it disclosed in December that Dell was considering divestitures to help offset its buyout of storage giant EMC, said Dell spokesman David Frink.

However, Frink cautioned that it's not fair to speculate that there will be more divestitures to come or that this will be the last, as the company moves forward with its EMC buyout deal that is valued at roughly $60 billion.

Quest Software and SonicWall were also reportedly being shopped around for $2 billion each, according to a Reuters report in December.

Dell's finding a new home for Dell Services will help ease some of the financial burden of the deal with EMC. According to Frink, that mega-deal with EMC is making progress, and is expected to close in the August to October time frame and on the original terms that the companies discussed. So far, the FTC and European Union have signed off on the transaction and there are a few more regulatory bodies that are needed to approve the deal.

The sale of Dell Services makes sense, said Sid Nag, Gartner's research director of cloud technology and service provider group.

"Dell has been looking to shed assets that don't line up with their strategy for their impending Dell-EMC merger, which will be focused on the enterprise systems and hardware market (server, storage, networking, private cloud), which includes cloud related systems," Nag said. "Dell Services is one such entity."

Additionally, Dell will get the cash flow from the sale that puts it closer to its proposed mega-buyout, as well as not having to lay off their services folks.

Dell Services currently includes three buckets: Business Process Outsourcing (BPO), Applications and Infrastructure, and Cloud Computing Services, which is not to be confused with its private cloud integrated systems. Dell's Application and Infrastructure and BPO services do not really have a place within the combined Dell-EMC company strategy, Nag said. The company's Cloud Computing Services, which were not doing well, would be an overlap to EMC's own cloud service, Virtustream.

NTT Data Deal

For Dell Services customers, they will get the benefit of a global player like NTT Data, which is focused on IT services, Nag said. He pointed out that NTT also acquired another services company when it snapped up Keane in 2010.

"This additional acquisition should provide Dell Services customers the confidence that they are being served by a company that is serious and focused on IT services as a whole," said Nag. "For NTT Data, this is a great opportunity to expand their global reach, including North America. Public Cloud services have been growing at a phenomenal 15% CAGR through 2019, as per Gartner's Cloud forecast. So, NTT Data sees this as an opportunity to capture a piece of that growth."

[Read VMware Executives Departing Ahead of Dell Merger.]

Although Dell will be receiving money from the sale of Dell Services, it is not walking away with a profit -- but rather a loss.

Back in 2009, Dell acquired Perot Systems for about $5 billion and is now selling it to NTT Data at a far lower price. Nonetheless, Dell founder, CEO, and chairman Michael Dell is pleased with the investment his company made in Perot Systems.

"I'm extremely proud of Dell Services' solid growth, broad capabilities and deep domain expertise in healthcare and life sciences, banking, financial services and insurance. Our investments in digital services, application modernization, tools, automation and 'as-a-service' models, have enabled Dell Services customers to simplify their IT environment, empower their workforce, engage their customers and grow," Dell said in a statement. "Together, NTT DATA and Dell Services will be a winning combination for Dell Services customers, team members, and partners."

Although the NTT Data transaction will be subject to regulatory approvals, Dell says it anticipates it will close sometime this year.