What next for Dell?

March 2, 2010

Not content with buying Perot Systems last autumn for US$3.9bn followed shortly thereafter with the purchase of Kace Networks, Dell has a potential US$11bn war-chest to make further acquisitions.

“You will see acquisitions from us,” Dell’s Steve Felice told Reuters’ journalist Christoph Steitz on Tuesday. Felice is president of the company’s consumer, small and medium business, which makes up almost half of all Dell’s sales.

“[These acquisitions will] be pointed towards the strategy that we have as a company; and one of those key strategies is increasing the solutions, so that we can be the best-value solution provider to customers,” he added.

While Dell may be targeting the security and systems management space as a top priority to beef up its services business geared toward sectors such as government and healthcare, Felice’s comments bring up once again the whole mooted idea of Dell buying PDA maker, Palm.

Indeed, US$11bn worth of cash is a lot of money to play around with, particularly for SVP and M&A guru Dave Johnson, whom Dell controversially poached from IBM last year after he had spent 27 years at Big Blue.

Johnson’s title is not officially head of M&A at Dell, but he nevertheless advises chief executive Michael Dell on both the short-term and long-term strategy of the business. Apparently, however, Johnson had not been involved in the Perot talks – something which had been ongoing since 2007 – the same year that speculation first surfaced of Dell acquiring Palm.

Indeed, Dell is under pressure in the PC space from other vendors including its fiercest rival HP. Scaling up to compete and bad retail deals have caused margin pressure for Dell, according to some analysts. Other risks for the business include a slowdown in the sale of its servers. That points to why Dell has pursued the Perot deal, but integration issues still remain.

Alternatively – if mobile is the future direction for communications – then perhaps Dell, which only last year revealed its first-ever smartphone, should go after Palm. And it would not necessarily cost that much for Dell to do so.

Dell’s market value is around US$26.6bn. Palm’s is hovering around US$1bn: its share price dive-bombed by almost 50% during February after issuing a profits warning due to a slow take-up of its devices. That, however, leaves open the question as to whether Dell would want to incorporate loss-making Palm. Would HP for that matter? Would anybody?

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