If we are truly heading into the post-PC era as industry analysts are predicting, then selling PCs is distinctly passe.
Apple (NASDAQ:AAPL) CEO Tim Cook pointed out during the March launch event for the new iPad that his company had sold 172 million “post-PC” devices in 2011 and that in the three months closing out 2011, Apple’s iPad sales exceeded the PC sales of any single computer manufacturer.
Manufacturers who are heavily reliant on PC sales have taken note of this trend and are scrambling to adapt. Count Dell (NASDAQ:DELL) among them. With the announcement that it has agreed to buy Wyse Technology (a company with a long history in desktop virtualization), Dell is making a calculated move to control the PC desktop without necessarily selling the desktop hardware.
Privately held Wyse has been a strong performer and has proven adept at surviving changing enterprise computing models, moving from terminals (such as those used in libraries) in the early 1980s to thin client Microsoft (NASDAQ:MSFT) Windows PC replacements in the 1990s and virtualized desktops through the 2000s. The company recently introduced mobile cloud apps to access PC desktops from an iOS or Google (NASDAQ:GOOG) Android device. It also holds more than 180 patents. Forbes says its revenues have grown by 45%, to $375 million, during the past year, and estimates put the deal’s value in the $400 million to $600 million range.
In short, the acquisition of Wyse has the potential to greatly enhance Dell’s enterprise offerings. Here are three reasons why the deal is a good idea:
- Patents. The technology sector is going through a litigation phase where the courtroom seems as highly valued as prime retail space, and where accumulating patents not only is a defensive strategy but can provide ammunition for an offensive move against competitors. Wyse Technologies is no Nortel, but it does hold 180-plus patents.
- This is another essential brick in Dell’s post-PC strategy, one that’s a proven performer in the lucrative enterprise market and that supports Dell’s cloud computing focus.
- Wyse Technology’s foray into mobile has considerable growth opportunity. Using an iPad to remotely access a desktop PC in the office is an increasingly popular option, and Wyse’s PocketCloud app offers enterprise-level encryption and security that competing apps lack (this will become more important as IT departments start cracking down on the security implications of mobile apps that access their networks).
Here’s why Dell’s acquisition of Wyse might not be a good idea:
- A big part of what Wyse brings to Dell is its mobile remote access technology, but Dell has had a poor track record with mobile: it dropped the ball on tablets despite getting an early jump into the game with its Dell Streak, and the company recently dropped out of the smartphone race altogether after discontinuing its generally well received Venue Pro Windows 7 smartphones. Analysts have doubts about whether Dell understands — or can sell — mobile.
- Dell bought eight companies in 2011 and has purchased five so far in 2012. Management’s focus on acquisition targets and subsequent integration of purchased companies could distract Dell when execution and long-term planning are already weak spots. A perfect case in point (going back to the Venue Pro smartphone): Dell jumped on the BlackBerry-bashing wagon in 2010 and publicly announced it was swapping 25,000 employee devices from Research in Motion (NASDAQ:RIMM) for new Dell Venue Pro smartphones. A year later, only 15,000 had been transferred and the Dell smartphone was eventually discontinued altogether. So, the PR stunt backfired, Dell made its case for corporate adoption of its mobile platform over RIM’s less compelling (it took a year to get the project past the halfway point) and then Dell employees ended up stuck with an abandoned smartphone platform.
- According to MarketWatch analysts, Dell still generates between 70-% and 75% of revenue from PC sales. With PC sales expected to rebound in the second half of 2012 (especially as hard drive shortages ease up), Dell may be better off spending money on improving its PC lineup — strengthening what is still its core competency — rather than diversifying.
Good move or bad move, it’s clear that Dell is determined not to take this post-PC thing lying down. It has taken one crack at tablets and failed, and with the iPad’s current domination of the tablet market, further attempts (at least in the near future) are liable to be futile. The cloud, on the other hand, is another big piece of the post-PC world and one where Apple has limited presence. The time to move and seize a dominant position may be now, and Dell appears to be pursuing that strategy wholeheartedly.
The Wall Street Journal reports that the Wyse acquisition is just one of three Dell has made in the past few days, and its fifth purchase so far in 2012. Other companies snapped up include AppAssure Software (a backup software technology company), Make Technologies (a firm whose technology assists in the transition of legacy PC systems to cloud-based infrastructure), Clerity Solutions (another company specializing in moving legacy applications to the cloud), and SonicWall (an advanced network security and data protection specialist).
Two things each of the Dell acquisitions have had in common: they are cloud related and they have experienced strong growth. Wyse Technologies fits that profile as well. The question will be whether Dell can integrate these products within its own portfolio without duplication and at a competitive price, and whether corporate IT departments will put the same trust in Dell when it comes to cloud infrastructure that they did with the original companies.
As of this writing, Brad Moon did not own a position in any of the stocks named here.