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from Breakingviews:

Tech services deals count on more with less

Xerox button

The U.S. computer services industry is back in favor, after a decade of struggling to cut costs and compete with offshore firms from India and elsewhere. At least that would be the obvious conclusion to draw from a recent string of multibillion-dollar deals.

Xerox has agreed to buy Affiliated Computer Services for $6.4 billion while Dell is paying $3.9 billion for Perot Systems. They are picking up where Hewlett-Packard left off when it paid $13.9 billion to buy Electronic Data Systems in 2008.

But what's driving these deals is not a bet on the improving growth prospects of the services industry. Instead, the buyers value computer services companies more as sales pipelines for their own products.

Take Xerox, which has struggled for years to move beyond copiers. The idea now is to manage information in both printed and paperless form. ACS is a leader in processing health claims and student loan payments for governments. It helps commercial clients cut the costs of payroll or human resources processing.

So don't think of this deal in terms of the traditional revenue synergies used to justify technology mergers. It's about helping commercial and government clients cut costs, a tight margin business in the best of times.

from Commentaries:

Dell shows discipline in opting for Perot

-- Eric Auchard is a Reuters columnist. The opinions expressed are his own --
  
By Eric Auchard

Eric AuchardLONDON, Sept 21 (Reuters) - Dell Inc has made a solid move into computer services by buying Perot Systems, even if the hefty price Dell is paying is hard to justify on Perot's standalone prospects alone. 

And the price looks very rich indeed.  Dell is spending nearly $4 billion in cash -- a premium of 68 percent to Perot stock's recent close -- to buy a slow-growing U.S. computer services firm focused on health care and government clients.
  
That's 1.4 times Perot's expected 2010 sales, or roughly two times more than rival Hewlett-Packard paid when it acquired EDS in a $13.2 billion deal last year.

from Commentaries:

A brutal logic to Dell’s reinvention: Eric Auchard

-- Eric Auchard is a Reuters columnist. The opinions expressed are his own --

By Eric Auchard

Michael Dell in New DelhiLONDON, July 22 (Reuters) - Dell Inc needs to reinvent itself to cope with falling margins for key products and a spate of mergers which are rapidly reshaping the competitive scene.

So the computer maker's moves into business services that help customers slash costs rather than add new programs look promising, given that every company under the sun is chasing this goal.

The other shift in Dell's favour is that corporate buyers look ready to start spending again on technology to generate new business, albeit at lower levels than before.