Dell Strives to Survive with Key Acquisitions

Once a leader in computer systems, Dell is quietly rebranding itself for a post-PC world. A string of recent acquisitions marks its attempted transformation from a consumer-device company into a business focused on enterprise. If successful, the tech giant's corporate overhaul could mean generous returns for patient investors. However, the real question is whether Dell's fresh direction can power up revenue growth and help the company capture new business.

According to The New York Times, Dell dished out a reported $1.25 billion last month to buy SonicWall, a provider of Internet security solutions for corporate networks. The move puts the company in direct competition with Cisco Systems, Juniper Networks, and Hewlett-Packard for control of the IT products and services industry.

Dell's more recent purchase of Wyse Technology, a thin-client maker and provider of cloud-management software, offers further evidence that Dell plans to create its own cohesive enterprise suite to compete with Cisco and HP's unified server systems. Wyse currently leads in thin-client market share, with HP in the No. 2 spot. However, both Cisco and HP can expect increased competition from Dell, thanks to smart acquisitions such as these.

Wyse's desktop virtualization technology and thin-client capabilities bolster Dell's position in the IT market by extending its portfolio of products and services. As Dell has agreed to acquire Wyse Technology, the trend towards desktop virtualisation – running corporate desktop PC software on servers “in the cloud” rather that on a local device – is likely to be given a further fillip.

“Desktop virtualisation can help organisations streamline IT management, improve productivity and security, and increase cost efficiency, ” said Jeff Clarke, president of Dell’s end user computing division, announcing the deal.

For Dell’s larger corporate customers, the deal could make it easier for them to migrate from “legacy” desktop PCs towards a potentially more flexible, more secure and more easily managed cloud computing model in which both applications and data are stored remotely on cloud servers rather than on a local hard drive. Krista Macomber and Jack Narcotta, analysts with Technology Business Research, argue that the acquisition of Wyse represents “an aggressive step to bring (Dell’s) solutions strategy closer to an area of historical strength it has with PCs: end-users’ work spaces.

With a 15% CAGR (compound annual growth rate), market analyst IDC expects the thin-client market to be valued around $3 billion by 2015 -- meaning Dell's playing in the right space in terms of growth potential. In addition, the Wyse acquisition better positions Dell to grab a piece of the fast-growing cloud-computing market, which should also help the company earn new enterprise customers. “From the core PC customer base to its newly formed software division, Dell is aligning its corporate strategy to build its reputation as an end-to-end, enterprise-calibre solutions provider to remain relevant in an IT industry migrating to as-a-service delivery models,” the TBR analysts said.

Dell's been struggling to keep up lately, and this could be the change it needs. For those keeping score, the addition of Wyse brings Dell's acquisition spree to 14 businesses purchased in the past two years. Dell now faces the tougher challenge of smoothly integrating these acquisitions into a unified suite of product offerings.

For Wyse, the proposed acquisition represents a validation of a strategy it has adopted in recent years to reposition the company as a cloud services pioneer. Wyse, a “thin client” pioneer, was founded in 1981 by a husband and wife team while they were studying engineering at Illinois University. It struggled, however, over the years to win broad acceptance for its thin client technology model despite its claimed advantages.

While the PC industry grew dramatically in the 1980s and 1990s, the slow uptake of thin client computing reflected a number of factors including relatively slow and unreliable data connections, concerns about the security of data stored remotely and perhaps most importantly, the desire of employees to have their own PCs and local storage rather rely on a “dumb terminal” and unseen server.

However, the growing popularity of cloud computing has enabled Wyse and other desktop virtualisation specialists to recast themselves as being in the vanguard of the next wave of corporate computing, enabling access to corporate applications from any device – including smartphones and PC tablets.