Dell, Schmidt, HP's Lane Say Technology Firms Highly Valued

Hewlett-Packard Co. Chairman Ray Lane, Dell Inc. Chief Executive Officer Michael Dell and Google Inc. CEO Eric Schmidt underscored the high valuations of technology companies in interviews today in Davos, Switzerland.

A recent funding round led by Goldman Sachs Group Inc. valued Facebook Inc., owner of the world’s largest social network, at $50 billion -- higher than the stock market capitalization for older Internet companies including EBay Inc. Groupon Inc., the two-year-old daily coupon site that last month rejected a $6 billion takeover from Google, is boosting revenue faster than Google and Amazon.com Inc. did at a similar stage.

“Some of these valuations are certainly very frothy, but I think they’re here to stay,” Lane said in an interview with Bloomberg Television at the World Economic Forum. “Facebook is not going away.”

Dell, speaking in a separate interview, said “there’s a fairly striking disconnect between the valuation of established tech companies and the newly emerging ones.”

As closely held technology companies soar in value before their initial public offerings, some investors are concerned that the result might be another technology bubble. Those concerns may be misguided, because standout websites won’t necessarily lead to inflated valuations for the entire industry, Lane said.

“I don’t think it will end like the ‘90s,” he said. “Considering that Facebook can easily become a 1 billion-users- platform, when it does that, it can become more like Google and will be worth more than $50 billion. The fact that Facebook, Groupon and Twitter could become $100 billion companies doesn’t mean that their competitors will, too.”

Future Potential

Google’s Schmidt said in a separate interview at the World Economic Forum that the high value attributed to some young companies is on par with their future potential.

The “e-commerce space feels overheated because valuations are based on long-term revenue expectations,” said Schmidt, who plans to step down from his role as CEO and become executive chairman in April. “But if you look at Google’s history, that potential is real”

Dell and Lane, whose companies compete in the market for personal computers, also traded barbs over 3Par Inc., a storage provider acquired for $2.35 billion in September by HP. The computer makers held a bidding war that tripled 3Par’s value.

“I think HP paid way too much for 3Par,” Dell said.

Dell, based in Round Rock, Texas, agreed to purchase a rival data-storage company, Compellent Technologies Inc., for $960 million in December.

“He was willing to pay just under what we paid,” Lane said of Dell’s highest offer for 3Par. “He went all the way up to almost what we paid.”

Dealmaking Spree

Lane joined the board of Palo Alto, California-based HP in November, after the 3Par deal was clinched.

Dell has announced eight acquisitions in the past 12 months and Palo Alto, California-based HP has announced at least nine. Market values on technology companies have risen as companies boost spending on data centers that provide cloud computing. The average premium on deals of over $1 billion for U.S. technology and Internet companies last year was more than 56 percent, more than double the premiums in 2006 and 2007.

KKR & Co. Co-Chairman Henry Kravis, whose private-equity firm purchased First Data Corp. for $27.5 billion in 2007, the largest tech deal of the past five years, said today that some technology companies have the potential to live up to their lofty values.

“Some look high, but you can improve their business,” Kravis said.

To contact the reporters on this story: Serena Saitto in Davos, Switzerland, at ssaitto@bloomberg.net; Erik Schatzker in New York at eschatzker@bloomberg.net; Alex Sherman in New York at asherman6@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.