World’s third largest computer maker Dell Inc. (DELL) has initiated the process to acquire the assets of an Israeli storage company for a consideration of $12 million, a month after the company went into receivership. The final settlement is yet to be completed and Dell is currently negotiating in an Israeli court to buy Exanet Ltd.’s intellectual property.
We believe that the acquisition of Exanet creates a win-win situation, as Exanet was unable to pay off its debt of $70 million and defaulted on the same. So the acquisition by Dell will help it to pay off its debt .On the other hand, it will give Dell its first R&D center in Israel. Dell’s product portfolio lacks Exanet’s clustered storage solution, something that its competitors already possess.
Recently, in September 2009, Dell acquired Perot Systems for $3.9 billion, the largest ever acquisition in the company’s history. The acquisition will allow it to offer a broader range of IT services, and create cross-selling opportunities for its hardware among Perot Systems’ customers. The company is eyeing more such acquisitions as it looks to bolster its portfolio and increase focus on corporate clients.
Acquisitions have been a major growth driver for Dell. The acquisition of storage company EqualLogic in 2007 for $1.4 billion added a higher-margin product line. The acquisition had an instant impact on Dell’s revenue, and EqualLogic offerings fit into the company’s server products as storage requirements increased.
Dell’s third quarter EPS fell short of the Zacks consensus estimate, although the company witnessed a sequential improvement in revenue. New products, a stronger services business, opportunities in the Electronic Medical Record sector, the smart phone initiative and a revival in IT spending are positive factors.
On the other hand, we are apprehensive about its relative weakness in emerging markets and the mobile/consumer segments of the PC market, as well as the high level of debt. For the upcoming quarter the Zacks Consensus estimate for Dell is 27 cents, same as the most accurate estimate and representing a year-over-year decline of 8.3%. Two analysts have revised their estimates upward for the upcoming quarter, with no downward revision.
Dell witnessed a negative earnings surprise in the October quarter, but with a revival in IT spending, the company is expected to report better numbers in the January quarter.
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