Dell Inc.: Banking on a Big Deal

June 18, 2009
Company looks to take advantage of recession that contributed to profit drop first quarter by snapping up tech companies

Dell Inc. appears to be preparing itself for a buying spree. The Wall Street Journal cited a source close to CEO Michael Dell who said the Round Rock, Texas, computer giant expects to purchase a "significant-sized company" in the coming months.

One sign that the company may be ready to make a move is the recent hire of former IBM mergers and acquisitions chief David Johnson. The IW 50 Best Manufacturer for 2009 has not said what Johnson's role with the company will be, but IBM has sued its former employee, saying his new post violates an agreement that restricts him from working with rivals.

The company, which is trying to pick up ground lost on the PC market to Hewlett Packard Co., is coming off another disappointing quarter. Profit dropped 63% to $290 million in the first quarter, while revenue fell 23% to $12.3 billion, the company reported in a May 28 financial statement.

The company is on track toward reducing annual costs by $4 billion by the end of 2011, according to Dell CFO Brian Gladden.

In the company's quarterly financial statement, Chairman and CEO Michael Dell said he expects virtualization and managed services to play larger roles in the company's product offerings. He pointed to the first-quarter introduction and growth of its EqualLogic virtualized datacenter and 11th-generation PowerEdge servers.

Dell Inc.
At A Glance

Dell Inc.
Round Rock, Texas
Primary Industry: Computers & Other Electronic Products
Number of Employees: 78,900
2008 In Review
Revenue: $61.1 billion
Profit Margin: 4.06%
Sales Turnover: 2.30
Inventory Turnover: 48.99
Revenue Growth: -0.05%
Return On Assets: 8.99%
Return On Equity: 66.35%
Sales for the EqualLogic systems were up 71% in the quarter. Overall, revenue for Dell's large business solutions segment was down 31% from the year-earlier period, totaling $3.4 billion. Revenue for institutional products was $3.2 billion, an 11% decrease from first-quarter 2009. Small and medium-sized business revenue totaled $3 billion, a 30% decrease from the previous-year period.

Consumer revenue decreased 16% to $2.8 billion in the first quarter, but shipments increased 12% over the previous-year period. The company benefited from product launches, including the Adamo luxury-style laptop. Dell also introduced the Studio One 19, an "all-in-one" entertainment PC, and the Studio XPS 435, designed for digital-content creation and tech enthusiasts.

Meanwhile, Dell received the top ranking in Technology Business Research's Corporate Sustainability Index Benchmark Report for 2009, the company said on May 20. The report measures the environmental initiatives of 40 companies in the computer hardware, software, professional services and network and telecommunications sectors. With 317.9 points, Dell led the second-place firm by more than 52 points in the overall index ranking, the company said. Dell led the second place firm (BT) by more than 52 points in the overall index ranking.

The company reported that it scored particularly well in renewable energy use, recycling and its integration of a sustainability strategy in its business. Dell sources about 35% of its U.S. energy use and 20% of its global power from alternative energy.

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