Will Dell Make a Move on Palm?

Channel News
0 0 No Comments

IBM’s reported desires for Sun Microsystems and Cisco’s entry into the blade server market has some analysts saying Dell needs to make a big move to remain competitive. What makes sense to them? Palm.

Astute observation, keen reading of the tealeaves or wishful thinking, analysts and speculators are raising the specter that Dell could buy Palm, the struggling handheld equipment manufacturer, to bolster its product lines and provide a revenue-generating bulkhead against rising competition by Cisco Systems and IBM.

Neither Dell nor Palm have said they’re in acquisition or merger talks, and the buzz is simply the result of speculation by three analysts interviewed by the Dow Jones news service about “what would make sense.” To the three analysts, a Dell-Palm is a good union since it would give Dell handsets and bail out the struggling Palm. http://money.cnn.com/news/newsfeeds/articles/djf500/200903201650DOWJONESDJONLINE000816_FORTUNE5.htm

The analysts may have seen clairvoyant given the reported lackluster response by cellphone carriers to Dell’s alleged freshman effort at a competitor to the Apple iPhone or the Google G1. Conversely, Palm’s Pre debuted with strong reviews, but isn’t generally available and there’s some speculation that Palm could face patent-infringement lawsuits for some of the smart phone’s underlying technology.

While Dell’s revenues and profits have shrunk under the weight of the recession, it remains one of the powerhouses of the IT industry and holds more than £6 billion in cash reserves. The bright spot in Dell’s universe is its new channel, which continues to grow at a faster than industry pace, Dell reports. Analysts seem to think Dell needs to make a major acquisition to stave of rising competition in its core product markets – servers and personal computers.

IBM is reportedly in deep talks to acquire Sun Microsystems. IBM and Sun have been silent on the acquisition talks since news broke nearly a week ago. Industry sources say it will be another week before an IBM-Sun deal is announced. Investors, however, are not reacting well to the silence and have started eroding Sun stock prices in trading.

Should IBM buy Sun for the reported price of $7 billion, it will gain a 10 percent gain in the server market share and place Dell squarely in last place.

Dell is also facing a new competitor in the server market with last week’s entry of Cisco Systems into the server market. Cisco’s unified computing architecture leverages blade technology to optimise data centre operations. Cisco is partnering with industry heavyweights VMware, EMC, Microsoft and Red Hat on its server play. While Cisco is targeting large enterprises, it’s success could put pressure on last-place Dell.

And Dell is under big pressure from longtime rival Hewlett-Packard, which holds the number two position in the server market and overtook Dell for the lead in desktop and notebook personal computers. Dell’s competitive needs in the PC market and desires for a handset/handheld has led some analysts to speculate that Dell would buy an Asian manufacturer such as Acer or HTC.

The recession and credit crunch has put a pinch on mergers and acqusitions, and 2008 was one of the slowest years for M&As. Some industry leaders and analysts have said that the suppressed valuations caused by the bull market are creating prime conditions for a wave of rapid consolidation.