Tech Companies IBM, Xerox and Dell Run After Business Process Outsourcing Firms
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In an aggressive attempt of major technology manufacturing firms to diversify its markets for more consistent revenue streams, they have been buying and bidding for business process outsourcing services firms.
Last month alone, technology giants Xerox (NYSE:XRX) and Dell Inc. (NASDAQ: DELL) have reported their acquisition of services companies, Affiliated Computer Services Inc. (NYSE:ACS) and Perot Systems Corporation (NYSE:PER). On September 28, printer and imaging business leader Xerox announced its purchase of business process outsourcing firm Affiliated Computer Services Inc. (NYSE:ACS) for $6.4 billion. A week before that, Wall Street Journal wrote that computer maker Dell Inc. (NASDAQ: DELL) has agreed to purchase information technology services Perot Systems Corporation (NYSE:PER) for $3.9 billion.
With the economic downturn, tech manufacturing firms have found themselves heavily suffering to meet positive quarterly results. Xerox (NYSE:XRX) second-quarter total revenue of $3.7 billion this year was down 18 percent last year’s. Dell Inc. (NASDAQ: DELL) also experienced revenue decrease for this quarter of 16% from $16 billion last year to $13.4 billion this year.
This shows the enterprise industries’ decrease in technology products and equipment spending. Hardware producers CEOs also admit that they even if hardware sales pick up next year, it will still retain the companies in a struggling mode. This pushes the technology manufacturing giants to diversify their markets through complimentary company takeovers.
Xerox (NYSE:XRX) move to buy BPO company Affiliated Computer Services Inc. (NYSE:ACS) is not a surprise anymore given that this is the same strategy taken on by printer maker Hewlett-Packard Company (NYSE:HPQ) when it acquired EDS. The tech services division of HP contributes 38% of the entire company’s $9.5 billion operating profit for this year while its printing business contributes 33% and the pc division even less at 12%.
International Business Machines Corp. (NYSE:IBM) has also been one of the pioneers in changing the hardware manufacturing business. For 15 years, the technology giant has moved from hardware and machine production to information technology service business with its purchase of PricewaterhouseCooper LLP (PwC) in 2002 and the establishment of its IBM Global Services. To further strengthen the company’s investment in their services business, IBM announced that it intends to buy Bank of America Corp.’s (NYSE:BAC) Wilshire Credit Corp., which provides BPO services to financial institutions in the mortgage sector.
What will be interesting to see is a debunking of this ongoing industry strategy wherein technology manufacturing giants buy out service companies to expand and diversify their markets as the demand for their main products have continually dwindled. This trend is expected given that these tech leaders have purchasing power advantage. A non-conformist analyst, Bob Evans of Information Week, have challenged Accenture Plc (NYSE:ACN) to be the first one to make that change as he believes that Accenture has the power reverse this current trend.
Author: Chris V.
Tags: ACN, ACS, BAC, Business Process Outsourcing, Dell, HPQ, IBM, outsourcing firms, PER, Xerox
October 21st, 2009 at 1:51 pm
[...] Tech Companies IBM, Xerox and Dell Run After Business Process Outsourcing Firms [...]
November 16th, 2009 at 12:50 pm
Just wanted to add that big names are running after Knowledge Process Outsourcing (KPO) firms also rather than Business Process Outsourcing (BPO) firms.
November 25th, 2009 at 3:02 am
The BPO industry is now responsible for providing stable career paths to it’s young workforce within the age group of 21 -25 years. Retaining these young professionals and keeping them motivated and engaged is a challenge that is giving HR managers sleepless nights.
December 2nd, 2009 at 1:52 am
These global business leaders are fully aware that “globality” is the current nature of modern enterprise. And outsourcing is essential to this evolution. IBM, Dell and others must adapt or face extinction.
February 9th, 2010 at 9:32 am
Business Process Outsourcing is essential for business growth.
March 1st, 2010 at 5:20 am
Nice write-up! For years now outsourcing work has been a practice of many companies. It is the practice of using outside firms to do work normally performed within a company. Outsourcing made a financial sense to companies that were now able to hire out even their core functions to specialized firms that could do them at significantly lower prices. At one point, companies started outsourcing work to the offshore companies that had the cheapest labor force. The trend rapidly grew and became known as offshoring. -Yolanda
March 29th, 2010 at 3:32 am
With companies such as IBM and Dell bidding for business outsourcing firms, it is a proof of how lucrative the outsourcing industry is. Certainly it will remain so for years to come.