Bloomberg News

Dell Will Focus on Acquisitions to Complement Hardware, CEO Says

December 11, 2012

Dell Inc. (DELL:US), which has spent more than $12.7 billion on 18 acquisitions since 2009, will focus on small and medium-size deals to add tools that complement its personal computers and servers, founder Michael Dell said.

Dell has spent about $5 billion just this year, and will keep buying companies that offer systems management, security technology and so-called virtualization, said Dell, who is also chief executive officer, at the Dell World customer conference in Austin, Texas. The conference runs through Dec. 13.

“We have found that there are certain kinds of acquisitions that work very well for us,” said Dell, who appeared at today’s event with company presidents Stephen Felice, Marius Haas, Suresh Vaswani, John Swainson and Jeff Clarke. The company will also continue “organic” investments in technology, he said.

Dell is struggling to transform from a supplier of PCs -- which still account for almost half its sales (DELL:US) -- into a maker of more lucrative servers, business software, and storage and networking gear. Analysts predict Dell’s gross margin (DELL:US), a measure of profitability, will narrow to 22.1 percent for the fiscal year ending in January, from 22.3 percent a year earlier, according to data compiled by Bloomberg.

Sales and earnings are also declining. Revenue may fall (DELL:US) 8.5 percent this year to $56.8 billion, and profit excluding some items may slip (DELL:US) to $1.71 a share, according to the average estimates of analysts surveyed by Bloomberg.

PC Slump

The third-largest PC maker is suffering as companies wait to upgrade PCs and consumers turn to smartphones and tablets like Apple Inc.’s iPhone and iPad. PC shipments tumbled 8.3 percent in the third quarter from a year earlier, according to market researcher Gartner Inc., and are forecast to fall this year for the first annual decline since 2001, according to IHS ISuppli.

To diversify, Round Rock, Texas-based Dell has been snapping up companies (DELL:US) including Quest Software in data-center management, Force10 Networks in computer networking and Compellent Technologies in data storage. Dell had $14.2 billion in cash and investments at the end of the fiscal third quarter, the company said last month on a conference call.

Dell plans to keep making acquisitions around the size of Gale Technologies, which had $20 million to $30 million in sales, Swainson said today in an interview. That deal closed last month.

Dell shares (DELL:US) rose less than 1 percent $10.67 at the close in New York. The stock -- which has dropped 27 percent this year -- is up 11 percent this month, getting a boost after Bill Shope, an analyst at Goldman Sachs Group Inc., upgraded the stock to buy (DELL:US). Shope said the company’s net cash and the presence of Michael Dell as a potential acquirer of more shares could present an opportunity for a leveraged buyout.

The CEO is scheduled to give an address in Austin tomorrow at noon New York time with former President Bill Clinton.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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