The story of Dell Inc. is well-known. Michael Dell started the company in his University of Texas dorm room making IBM PC-compatible computers. Dell used a strategy based on made-to-order computers sold directly to customers to build one of the world’s largest manufacturers of personal computers and peripheral equipment. Michael Dell and investors took the corporation private in an almost $25 billion leveraged buyout in 2013.
After one merger in 2006 to strengthen the PC business, Dell embarked on a series of acquisitions designed to create computer services and software solutions that integrated with hardware manufacturing.
Dell’s 2006 purchase of Alienware was an unusual move for a company traditionally focused on the high internal growth of its computer division. Alienware, a maker of high-end PC gaming machines, had a large following among enthusiasts for the growing online gaming industry. This group of techno-geeks willingly pays more for a high-end machine and upgrades more often than regular computer customers.
At the time of the acquisition, Dell had an exclusive chip agreement with Intel. Alienware was using chips from Advanced Micro Devices Inc. (NASDAQ: AMD). It was theorized that one of Dell’s motivations was to acquire AMD system design expertise while putting pressure on Intel Corporation (NASDAQ: INTC) with whom it had an exclusive agreement.
Alienware still operates as a separate subsidiary of Dell. Dell’s manufacturing, marketing and supply chain expertise has boosted Alienware’s position within the PC gaming industry. New Alienware machines are virtual reality (VR) ready and configurable for the Oculus Rift or HTC Vive systems.
The majority of Dell’s other acquisitions have been focused away from the core computer business and are designed to build business-to-business (B2B) services.
In 2009, Dell acquired Perot Systems for $3.9 billion. Dell had already been diversifying into providing management information system software and services to business customers, and Perot Systems expanded that business internationally. Perot Systems enjoyed long-term relationships with health care companies as well as various governmental entities. The merger added new services for Dell to offer existing clients and expanded opportunities for sales of Dell-manufactured hardware.
Over a three-month period in 2012, Dell acquired three companies that specialized in network, storage and software security. SonicWall, AppAssure and Quest Software came with customers, patents and new products. The acquisitions allowed Dell to offer better security, network management, cloud computing infrastructure and data backup to its business clientele. SonicWall still operates as a subsidiary of Dell, while AppAssure and Quest Software were integrated with other Dell product lines. The AppAssure name is still used but only for branding purposes.
These acquisitions combined with another half-dozen smaller deals solidified Dell’s position in a market space crowded with competition.
EMC Corporation (NYSE: EMC) is one of the largest manufacturers and providers of information technology and data management infrastructure. The company's focus is on large enterprise-level systems. Dell and EMC have been doing business together for a decade by cross-selling products. At the same time, the two companies were working separately on new products that pushed into each other's markets. Rather than compete, it made more sense to combine the two companies. The new company, to be called Dell Technologies, will have a strong product line in the hybrid cloud computing, network security and storage markets.
Dell will officially own EMC when the deal closes in the third quarter of 2016. In July 2016, 98% of EMC shareholders voted to approve Dell’s $67 billion acquisition of EMC. The combination of the two companies is the largest technology merger ever. EMC brings $25 billion in revenue to Dell and creates a business that will have less than half its revenue coming from PC manufacturing and sales.
Cloud computing is a useful concept for software and some customer account information, but many businesses want to maintain control of final data and internal information on their hardware system. The company-owned equipment serves as a basis for hybrid cloud-style services offered to clients. This is the marketplace in which the new Dell Technologies will be strongly positioned to compete against any other information management technology company. It will have product lines suitable for all sizes of businesses from small to enterprise level.
Dell Technologies has one other significant advantage. As the company is privately held, it has no need to please analysts or activist shareholders and can pursue business opportunities with a long-term mindset.