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Can Dell Buy Its Way Out of Irrelevance?

Dell
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Dell

One of the most popular topics of discussion on Wall Street is that of computer giant Dell, and more specifically its future in the face of PC death.

It is broadly known that mobile devices from the likes of Apple, Google, and Amazon.com have all but sealed its fate, sending Dell spiraling toward irrelevance. Making matters worse is the fact that its once-proud partner, software giant Microsoft, has now essentially proclaimed it’s every man for himself by deciding to enter the realm of hardware with its own Surface tablet — effectively becoming a competitor. So what is left for Dell?

This is a question the company’s management has been trying to answer for quite some time. The response of late appears to have been, “let’s buy our way out of this mess.” The company has gone on a shopping spree, spending $2.4 billion dollars to scoop up QuestSoftware. This comes on the heels of its recent acquisition of SonicWall for an estimated $1.2 billion. Let’s not forget that is also acquired Wyse Technology earlier this year, KACE Networks in 2010, and Perot Systems in 2009.

It seems the company is thinking it needs to build its software portfolio by buying up niche companies to offset its fledging hardware/PC businesses, which are now rapidly deteriorating. Is the strategy working? I don’t think so. Nor do I think the company has put enough thought into its acquisitions.

Dell’s recent acquisitions were broadly intended to improve its footprint in enterprise. However, if PCs are indeed dying as evidence suggests, then what sense does it make to acquire companies and systems that support PCs?

The company’s challenge is finding new ways to grow its high-margin segments, which include networking and storage. It also has to figure out ways to better leverage these recent acquisitions to synergize with its existing businesses and address a new mobile strategy. This is the only way it can effectively fight back.

The company should embrace the idea that mobile devices aren’t going anywhere and realize that Apple and Google are not going to rest until they reach their level of dominance. With that in mind, and considering where and how it has been spending its cash, it can immediately become relevant by buying an existing mobile specialty company — one with an existing enterprise brand similar to its own. To that end, the only acquisition that makes this type of sense is Research In Motion.

The justification for this deal comes from the company’s most recent earnings report, where it continues to show considerable weakness in its mobility division — a 19 percent decline year-over-year. It also got confirmation that its PC business is running “out of memory” and a “reboot” is not possible. That segment fell 9 percent. Even more concerning is the fact that revenue actually dropped 14 percent annually when combined both desktops and laptops.

Mobile devices are winning and Dell needs to get in the game.

Gone are the days of PC domination in the mid-to-late ’90s. This is a new era where the leaders are now Apple, Google, Amazon , and Samsung. It was precisely this reality that I believe caused Microsoft to want to forge a partnership with Nokia, while also recently announcing its Surface tablet.

For these reasons, buying RIM makes more sense for Dell than any further acquisitions in software and services that will add little to its bottom line while only prolonging its irrelevance.

The company has spent billions over the past several years acquiring companies that have done little to lift its profile above boring. It is time that it realizes that if it truly wants to matter, it needs to do something radical.

Dell needs to buy RIM and get in the game. While it will not guarantee that it will be able to beat Apple and Google in the device sector, at least it will matter again.

—By TheStreet.com Contributor Richard Saintvilus

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Disclosures:

At the time of publication, Richard Saintvilus was long Apple’s stock.

Disclaimer

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