Dell to continue drive to enterprise with buy-out

Dell is likely to curb the consumer portion of its client business

By , IDG News Service |  

"The midmarket makes a lot of sense and it's a market ... that's valuable," Gottheil said. "That's a solid business."

Dell won't be like IBM, which offers specialized products to high-end customers and also has a large consulting service. With respect to its acquisition and buy-out strategy, Dell is in a better position than HP, which made questionable acquisitions and went through a failed attempt to separate the PC business from main operations, Gottheil said.

There will a larger Dell investment in data-center capabilities to extend the PowerEdge server brand, said Matthew Eastwood, group vice president and general manager of IDC's Enterprise Platform Group.

"I could see Dell exiting the consumer market, about 20 percent of their revenues, and perhaps printing as well," Eastwood said, adding that the PC business adds little to the bottom line and dilutes Dell's margins.

But the company will continue to offer client products geared toward health care and education and other vertical markets, Eastwood said.

Dell will likely continue to acquire companies to expand its product portfolio, analysts said. Dell has successfully integrated EqualLogic, Boomi, SecureWorks and Perot Systems into daily operations, though there have been questions surrounding the integration of software assets it acquired. The company intends to unite its disparate software assets under the umbrella of Quest Software, which was acquired last year for $2.4 billion and was hailed as being the centerpiece of Dell's software strategy. Dell is also stepping up its focus on cloud and virtualization.

The decision to go private, however, also carries risks related to products and the company's ability to meet its debt obligations, analysts said.

"A leveraged buy-out is utterly dependent upon the company generating significant cash to pay off a crushing debt load. In a hypercompetitive market and during a recession, the lenders must have great deal of confidence that Dell can pay them back," said Anthony Sabino, a professor at St. John's University's Peter J. Tobin College of Business, in an email.

Until the dust of the buyout settles, there will be questions about Dell's product strategy and the impact on the company's customers, said Carter Lusher, chief IT analyst at Ovum, in a research note.

Companies should assess the risk involved and "put in place plans should Dell's radical hardware, software, and services shifts require changes to procurement plans," Lusher said.

"While the company might come out of this transition stronger with a product lineup that better meets the needs of businesses and public sector organizations, there will be uncertainty as to what products and services stay, get strengthen, or get eliminated," Lusher said.

Dell shares, meanwhile closed at $13.42 Tuesday, up by $0.15.

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