Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Dell Shares Crash on Earnings Miss, So It Makes an Acquisition

Shares of Dell are getting whacked today on the heels of a quarterly earnings report that fell short by only a little, but which revealed the depths of the complexity of the PC-to-enterprise pivot that is central to the turnaround that CEO Michael Dell has been trying to engineer for a few years now.

As of 11 am ET, shares of Dell have fallen by 71 cents, more than 7 percent, to $8.85 from a closing price of $9.56 yesterday.

Analysts for now are voting thumbs down on the state of play at Dell. Shaw Wu at Sterne Agee summed it up: “On the positive, Dell’s server business grew 11 percent year-on-year, but was more than offset by a 19 percent decline in its PC business indicating considerable market share loss and clear cannibalization by tablets and smart phones powered by Apple and Google,” he wrote in a note to clients out today. “The bottom line is that the transformation beyond PCs is harder and taking much longer than expected. We don’t think the iPad mini makes it easier.”

Chris Whitmore of Deutsche Bank Securities slashed his price target on Dell shares to $13 from $16. “PC results were disappointing as DELL lost share in notebooks and mobility is underperforming management targets. In addition, the consumer business swung to a loss due to a Windows 8 demand pause and related channel inventory drawdown and Dell’s walking away from lower-end notebook business,” he wrote in a note to clients this morning. “Further, Dell does not expect a Windows 8 demand bump in the fourth quarter and enterprise visibility remains poor as CIOs manage IT budgets closely. We do not anticipate any resolution until 1Q13 at the earliest.”

Naturally, Dell decided this was the day to announce an acquisition. It’s a small one, but potentially important. The company, Gale Technologies, specializes in automation software that makes it easier to manage cloud computing environments, especially mixed public- and private-cloud environments. Its customers include Alcatel-Lucent, Ericcson, and Verizon.

Sound familiar? Well, it just so happens that yesterday Cisco Systems made an acquisition of a company called Cloupia with similar capabilities. Cloupia went for $125 million. Dell isn’t disclosing the amount it has paid for Gale, which means it’s a lot smaller.

But looks can be deceiving, says analyst Patrick Moorhead of Moor Insights and Strategy. “This deal is a big one not on size, but strategic capabilities,” he said. “Dell can now compete head-on with Hewlett-Packard in stitching together and managing private and public clouds.”

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