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Analyst Blog

The world’s third largest PC maker Dell Inc. sealed two government deals yesterday.

Under the $100.0 million contract awarded by the National Institute of Allergy and Infectious Diseases (NIAID), Dell will provide information technology (IT) support to researchers. The institute is an agency of the United States Department of Health and Human Services and is responsible for conducting researches to detect and prevent various infectious and allergic diseases.

Dell’s technological support will ensure uninterrupted research work, the upgradation of the institute’s network infrastructure, supporting high performance computing and ensuring secure data exchange. It will also facilitate the adoption of cloud computing across the institute’s IT network for smooth IT management.

In a similar development, the National Institute of Health’s (NIH) Information Technology Acquisition and Assessment Center (NITAAC) opted for Dell’s services for a period of 10 years. NITAAC is responsible for acquiring various products and services in the IT, defense and health care areas for provision to different government agencies.

This Indefinite Delivery/Indefinite Quantity (ID/IQ) contract has a ceiling value of $20.0 billion. Under this contract, Dell will help in software development, management of IT operations, security of critical infrastructure, as well as other general IT functions.

Dell’s service deal-winning spree is likely to continue. Dell’s Service segment performed well in the last quarter (up by 4.0% year over year) with the company reporting a solid backlog growth of 15.0% year over year.

We are encouraged by Dell’s recent cost cutting initiatives, opportunities in healthcare, cloud computing and the ramp up of Ultrabooks. But concerns over Dell’s ability to continue dividend payouts, uncertainty regarding the acquisition of software vendor Quest Software and fears of losing PC market share to Hewlett-Packard Company and Apple Inc. have led to our bearish view for the short term.

Currently, Dell has a Zacks #4 Rank, which implies a short-term Sell rating.

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