Dell: Who You Gonna Buy?
Bernstein Research analyst Toni Sacconaghi has a few ideas about what Dell should do with the nearly $11 billion in cash reserves it’s sitting on, and they don’t include buying Palm.
Sacconaghi believes that Dell (DELL) isn’t interested in a “transformational” acquisition, though its interest in the handset market might suggest otherwise. Rather, the company is mulling the acquisition of small- to medium-sized enterprise-related companies.
“While there has been speculation that Dell could look to acquire a handset company and we continue to believe that a consolidation play in the PC space could make sense for additional details, Dell appears focused on boosting its enterprise business by acquiring small to medium sized companies with strong margin profiles and higher levels of recurring revenues,” Sacconaghi writes.
Which companies? Software, services or storage and networking outfits, most likely, says Sacconaghi. Companies like Perot Systems (PER), Salesforce.com (CRM), Compellant (CML) and 3Com (COMS).
“We see Dell potentially looking to acquire a smaller remote infrastructure management company, or a smaller outsourcer–Perot fits the latter description, and is possible, but it is unclear that it is a willing seller, and its unique concentration (50 percent) in healthcare may be too narrow a platform for Dell’s offerings,” the analyst writes.
“…Dell’s software acquisitions to date have largely centered around systems management and we believe that similar types of companies could be acquired to further expand Dell’s capabilities. Also in software, we believe that [Salesforce.com] would be strategically consistent with Dell’s efforts to drive business at mid to large enterprises, but would be expensive ($4.8B current market cap) and would have a limited impact on revenues ($1.1B in their last FY)….
“Given that Dell’s biggest enterprise partnership is in storage, we believe the company could look to acquire additional IP for its own use. Compellent and CommVault (CVLT) could be appropriate targets. We think a networking deal is less likely, but purchasing someone such as 3COM and attempting to commoditize the networking space would not be inconsistent with Dell’s stated enterprise strategy.”
An interesting list of targets. Still, you’ve got to wonder why it doesn’t include Palm (PALM). After all, Dell really can’t afford to miss out on the handheld market completely. Can it?