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Dell Clarifies It's M&A Record, And Weighs In On Acer's Market Share Gains


I just heard from Dell?? public relations folks, about my May 7 post ??ightmare In Round Rock: Acer Closes In On Dell For No. 2 In PCs.?/a> They had some good input, so here’s the item again with new additions in italics.

Acer’s ambition to be the world’s largest PC maker by 2011 would have been laughable a year ago. But as my colleague Bruce Einhorn recently pointed out in his recent story on CEO Gianfranco Lanci, it’s no laughing matter for PC rivals anymore. In Gartner’s latest quarterly numbers, released yesterday, Taiwan-based Acer saw its global market share grow by more than a third, to 13% of the total market. It’s now neck and neck with Dell for No. 2 (Dell has 13.1%). HP retains the clear lead overall, with 19.8% share, but Acer is growing much faster.

Then there’s Dell. Its shipments fell 17% for the quarter compared to the year before. In fact, First Global analyst Amitabh Goel notes that the other top four PC makers (HP, Acer, Lenovo, and Toshiba) actually had a shipments increase of 10%. In other words, Dell is bearing essentially all the brunt of the economic downturn. Rarely has one company absorbed so much pain for its rivals.

Any recovery in corporate spending—hinted at in earnings calls by Cisco Systems and others—would bring great relief, given Dell’s reliance on corporate sales. But life can’t get that much easier, so long as there are companies such as Acer willing to trade profits for market share. It’s a macabre twist of fate for Dell, which during the 1990s used its operating efficiencies to force all of its rivals to run at a loss. Of course, there’s a proud tradition of low-margin PC makers that raced to big market share only to go bust in spectacular fashion when they began piling up little losses on millions of PCs instead of a few bucks of profit. In fact, Acer owns two of the most spectacular flame-outs: Packard-Bell and eMachines (which Acer inherited via its 2007 purchase of Gateway, yet another one-time high-flier). So Acer is definitely living life dangerously.

But while Dell made—and still makes—much more money back then than Acer does now, the effect for Acer’s hapless rivals is the same. They can either try to maintain market share and incur financial pain, or back off and watch Acer take still more share and impose its will on the market to an even greater extent.

Clearly, Dell needs to make some kind of dramatic escape from this trap. Just sticking to its knitting isn’t going to fix things. Neither, evidently, are moves that were once considered radical around the company’s Round Rock, Texas headquarters, such as the company’s decision to start selling at retail stores as well as on its website. That was two years ago.

What’s the answer likely to be? For starters, Dell seems intent on moving beyond Wintel in order to tap markets for new, cheaper kinds of devices. That’s why it has created a cell-phone based on Google’s Android operating system, as I reported in March, and why it evidently is also testing a notebook PC based on Android.

But Android itself won’t save Dell—certainly not if Dell doesn’t come up with truly killer implementations of Google’s easily customized code (As regards the cellphone, so far is not so good; Carriers apparently panned the product, one reason it hasn’t been publicly announced).

Rather, the company may have decided it has little choice than to do a big acquisition. It reportedly is looking to hire a top-flight M&A maven that would report to the CFO (why not to Michael Dell himself, I wonder?). Never mind that the 25 year old company has essentially zero success when it comes to buying and successfully integrating companies.

Here’s where Dell makes a compelling case that I was a bit too cavalier in my analysis. Spokesperson David Frink reminds that the company has acquired ten companies over the past 28 months, and says that the largest of those, of 400-person storage-maker EqualLogic, is going very well. Sales have trebled since that deal in 2007.

Still, these aren’t the kind of large-scale, game-changing deals that will probably be required for M&A to really change Dell’s fortunes.

Dell needs to buy its way into some promising growth markets, and do it fast—before its many corporate computing rivals grab all the tasty targets. Clearly, all the big players are jockeying to be far broader, one-stop-shops as the market moves into the cloud-computing era. It will no longer be enough to focus on one of the traditional market segments—that is, computers, networking, storage, software or services. If that fact was lost anyone, Larry Ellison left little doubt by buying Sun.

The price of more inaction could be high. In fact, Bill Whyman, an insightful analyst with International Strategy & Investment, noted in a May 5 report called “ORCL-JAVA AND THE NEW TECH ORDER” that Dell “could end up being acquired.” That would have sounded laughable a year ago, as well.


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