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As Competition Intensifies, Dell Embraces New IT Models

Posted on Tuesday, May 29th 2012

According to Gartner’s recently released global PC shipment report, worldwide PC shipments for the first quarter this year grew 1.9% over the year to 89 million units. Analysts projected growth of 1.2% during the period. HP expanded their market share from 16.9% a year ago to 17.2%, with shipment of over 15.3 million units. This was a very strong quarter for China-based Lenovo, which saw sales grow 28.1% over the year, helping them to surpass Dell and become the second-largest PC vendor in the world, with sales of 11.6 million units. It was a disappointing quarter for Dell, which saw sales fall 1.6% over the year, the first decline in two years, to 9.8 million units.

The traditional PC players in the U.S. are facing aggressive competition from Apple products. HP saw the strongest growth, with sales increasing 6.6% over the year to nearly 4.5 million units. Besides HP, among the top five vendors in the U.S., Apple was the only one that saw shipments grow over the quarter. Apple’s sales volume grew 3.8% over the year. Dell managed to retain their position as second-largest supplier in the U.S., with sales of close to 3.5 million units.

Dell’s Financials
Dell’s (NASDAQ:Dell) Q1 revenues fell 4% over the year to $14.4 billion, missing the Street’s target of $14.9 billion. EPS of $0.43 was 22% short of the previous year’s earnings and $0.03 short of the market’s target.

Dell’s focus on the higher-margin enterprise market is showing traction, but the transition is not fast enough to compensate for their falling share of the consumer market. At the end of the previous quarter, enterprise solutions and services business revenues grew 2% over the year to $4.5 billion. Within the enterprise segment, services revenues grew 4% to $2.1 billion and revenues from Dell-owned storage products grew 24% to $423 million. By market segment, Dell’s revenues from large enterprises fell 3% over the year to $4.4 billion, public sector revenues fell 4% to $3.5 billion, and consumer revenues fell 12% to $3 billion. The SMB segment was the only segment to show growth, at 4% over the year to $3.5 billion. Enterprise solutions and services revenue increased 17% over the year.

For the current quarter, Dell projected revenues to grow 2%-4% over the year to $14.7 billion-$15 billion. The Street was expecting revenues of $15.4 billion.

Dell’s Acquisitions
Dell has been on a major acquisition spree. Thus far in 2012, they have bought five companies. In April alone, they announced three acquisitions within a week. Their latest acquisition was that of Make Technologies, a British Columbia–based firm that helps organizations switch from legacy applications to more modern ones. Make Technologies’ tools provide customers with end-to-end application portfolio transformation solutions and an automated application and code migration tool to re-architect legacy application software and data to a more modern architecture that helps reduce costs and risk for application re-engineering.

Within the same segment, Dell also announced plans to acquire Clerity Solutions, a provider of applications modernization and re-hosting solutions and services. Chicago-based Clerity is known for their unique re-hosting solution that simplifies the movement of applications from legacy computing architectures into new IT environments. By automating this approach to IT modernization, Clerity minimizes the need for retesting systems and lowers the cost of retraining IT personnel.

As part of the expansion in the cloud segment, Dell announced plans to acquire Wyse Technology. Wyse is a closely held company that sells thin client PCs and related management software to enable organizations to establish centrally managed infrastructures. To date, Wyse has shipped more than 20 million devices worldwide. Wyse’s solutions also help organizations with services such as bring-your-own-device technologies.

Last quarter, Dell acquired SonicWall to strengthen their security product offerings. SonicWall makes firewall software, unified security management applications, and appliances. Dell will be able to leverage the acquisition to deliver their complete security software stack. SonicWall already has more than 300,000 customers and 130 patents and is said to be on an annual revenue run rate of more than $260 million.

Earlier this year, Dell had also acquired AppAssure Software, a backup and recovery software company. AppAssure’s products support not only physical servers, but also virtual server services offered by VMware, Hyper-V, and XenServer. Through the acquisition, Dell will be able to offer a storage infrastructure offering that will cover hardware, data protection, software, and the cloud.

The stock is trading at $12.46 with market capitalization is $21.92 billion. It touched a 52-week high of $18.36 earlier this year.

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