DELL Dell Inc. (MM)

Dell Inc. (DELL) has long been working to go beyond its traditional PC and server business into the higher-end data storage market. Dell is now planning to spend a handsome $1.0 billion to build its cloud computing business.

Dell expects to open 12 data centers by the end of this year and 10 more within the next fiscal year. Equipped with the latest technology solutions and services, the new data centers will help customers better manage their technology budgets through less emphasis on infrastructure management and more on technology innovation. They can run programs and store information in Dell-operated centers, accessing them over the Internet, thereby reducing ownership cost.

Notable storage vendor acquisitions by Dell in the past four years include EqualLogic, Compellent Technology and Ocarina Networks. Last year, Dell also showed a keen interest in storage vendor 3Par, but was ultimately edged out by rival Hewlett Packard Co. (HPQ) in a bidding war. Barring this loss, Dell has seen successful on the acquisition front, bringing the other companies under its umbrella and strengthening its storage/cloud-based offerings.

As per the findings of U.S. research firm Gartner, the market for cloud services could grow to $102.1 billion in 2012 from $68.3 billion in 2010. This opportunity has also inspired another tech major, International Business Machines Corp. (IBM), to announce a cloud-based software for its customers.

However, we find Dell in a relatively better position to capitalize on storage opportunities, given its rich cloud-portfolio. We are encouraged by Dell’s shift in focus from PC and server roots to becoming a data-center vendor.

Apart from this, Dell is also investing in high growth countries such as Brazil, Russia, India, and China, and recently announced its plan to expand in India. We remain confident about Dell’s expansion strategy.

However, concerns for the company include soft demand from the consumer vertical, a high debt level and stiff competition in the cloud and computing space.

Currently, Dell has a Zacks #1 Rank, which equates to a short-term Strong Buy recommendation.

 
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