DELL Dell Inc. (MM)

Acquisitions seem to be the order of the day for Dell Inc. (DELL) as the company announced the acquisition of two companies over the last one week. The more recent of the two acquisitions is that of Clerity Solution, a provider of application modernization services.

The acquisition of Clerity Solution reiterates the company’s growing focus on cloud computing. Given the benefits of cloud computing, including cost and space savings, the company is set to explore the business potential of this segment. We believe that the recent acquisition will help the company to strengthen its cloud business.

Clerity offers unique technology that assists companies to migrate from older version of computer networks to somewhat new IT systems that include cloud computing. Clerity’s services help in automating the transition and spare the company from re-training their IT personnel.

The recent acquisition marks the company’s fourth in fiscal 2013 and is consistent with its strategy of diversification into the higher-margin storage, software and services segments.

Acquisitions have helped drive significant growth at Dell. Earlier in February, the company agreed to buy Virginia-based backup and replication software maker, AppAssure Software and followed this up with the acquisition of California-based SonicWall in March.

Last year, the company completed the acquisition of storage solution provider Compellent Technologies Inc. This acquisition has enhanced its portfolio in the automated data transfer and management, tiering and thin provisioning segments. The enhanced storage platform will also attract new users and will improve the company’s foothold in the data storage space.

We believe that the favorable pricing trend in the U.S. coupled with planned expansion into higher-growth higher-margin segments will boost revenue growth in the upcoming quarters. Equinix is also planning further expansion in emerging markets. China, India, Japan and Australia are the new target areas.

We remain optimistic about the company’s recurring revenue model and future expansion plans. Despite all the positives, competitive threat from the likes of AT&T Inc. (T) and Verizon Inc. (VZ) continue to increase. European exposure and industry consolidation are also concerning.

Dell has a Zacks #3 Rank, implying a short-term Hold rating.

 
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