Dell looking to grow through acquisitions

Dell is looking to acquire storage and services companies geared to the enterprise

Dell executives on Tuesday said the company was looking to stimulate growth through acquisition as it moves its focus from client hardware to enterprise products.

The company is looking to shift its product portfolio to include offerings that could help improve the profitability in the near and long term, said Michael Dell, Dell's CEO, during an analyst conference in Austin, Texas.

Dell pointed to its enterprise business as a high-margin area where the company could seek acquisitions. Dell's offerings in the enterprise space include servers, storage and services.

The acquisition of storage company EqualLogic in 2007 was a key test for Dell to offer products that deliver high margins, and the purchase worked out well, he said.

The acquisition had an instant impact on Dell's revenue, and EqualLogic offerings fit into the company's server products as storage requirements increased. EqualLogic also offered the intellectual properties that helped Dell optimize its offerings as data centers shifted to virtualized environments, Dell said.

Driving more storage into data centers continues to be a growing opportunity, Dell said. Server virtualization will continue to grow as data infrastructures move to virtualized environments.

The opportunity may drive down server purchases, but it offers the opportunity to be more of a consultant, which could generate more storage revenue. That helps Dell get a larger chunk of revenue from overall data center spending by companies.

Dell is also looking to expand in the managed services area as customers build out server and storage infrastructures.

These offerings provide reasonable margins, but also help generate sales of hardware attached to services while keeping the company close to customers, said Steve Schuckenbrock, president of large enterprise at Dell, during the analyst conference.

The company has already made acquisitions in the managed services area over the last two years, including companies like Everdream, which offers on-demand software and managed services SilverBack and MessageOne.

The cloud-computing market is also a fast growing opportunity where Dell may seek acquisitions, company executives said. Dell could provide cloud services to push more hardware and storage products into server infrastructures, while building up its consulting services.

Dell is more focused on acquiring healthy companies with products that can offer quick returns, so it may not seek acquisitions in the low-margin areas like client hardware, said Brian Gladden, Dell's chief financial officer, during the conference.

Client hardware makes up a majority of Dell's business, but the company wants to focus its growth and products and services that deliver profitability, he said.

The company has built up its financial reserves as it prepares to acquire companies. Dell had US$9.7 billion in cash and equivalents at the end of its fiscal first quarter of 2010 that ended on May 1.

Dell saw overall revenue fall but EqualLogic storage products revenue increased 71 percent year-over-year during the first fiscal quarter.

A lot of companies have been also been attached to Dell's acquisition efforts. It has been rumored that Dell would acquire Palm to expand its presence in the mobile market. Palm would provide smartphones to Dell's portfolio of products, something Dell doesn't offer yet.

Dell's mobility currently efforts revolve around netbooks and laptops, and has been rumored to be developing a smartphone for a long time, though no product has materialized yet. Palm's acquisition would also help Dell compete with Apple, which offers the popular iPhone.

Some observers also speculated that Dell would acquire Acer in order to expand its PC market share. However the acquisition wasn't considered a match as there would be product overlap, with both companies offering PCs for similar audiences.

Tags mergers & acquistionsDell

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Agam Shah

IDG News Service

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