Business
1:05 pm
Sat September 29, 2012

What's Behind Dell's Shopping Spree

In an widely-circulated blog post titled "Hardware is Dead," investment banker Jay Goldberg shocked the tech world by describing what he discovered in a tiny stall inside a Chinese electronics market. In a room full of vendors hawking computers and parts, Goldberg found an Android tablet computer – essentially a non-Apple iPad – for only $45.

Speaking with KUT News, Goldberg says he was surprised by the device's high quality and low price. "I would consider it a device that anyone in the U.S. would be comfortable using," he says. "It was a seven-inch device. It ran the latest version of Android. It was WiFi only, it had a nice screen, and a very snappy processor, so it responded to your commands, quickly."

That’s what Dell is up against, trying to make money, in a ruthlessly competitive global market, by manufacturing desktop computers, laptops, tablets, and servers. Dell's stock price shows its struggle, dropping from more than $40 per share in 2005 to around $10.

At Dell headquarters, spokesman Jess Blackburn says the nature of Dell’s business has changed, and the company is undergoing a transformation.  "Our strategy, which we have been particularly focused on, is taking Dell from more of a hardware company to a full service, comprehensive solutions provider."

That means networking, servers, cloud storage and security hardware, all tied together by software. Dell is busy buying companies, as many as one each month, to fill gaps and enhance its offerings. The completion yesterday of its $2.4 billion dollar purchase of Quest Software was an element of that strategy.

The potential payoffs in this “corporate enterprise” market are higher growth rates and bigger profit margins.

Brian Marshall, who follows Dell for ISI International Strategy & Investment, says he thinks the strategy will work, but it won't be easy or quick. "The question is how long is it going to take for them to make material inroads and improve their profit and loss, and I think that's going to take some time," he says.

But Marshall adds that Dell stock is "extremely cheap," and that the company recently started paying a dividend.