Dell Inc. plans more data-storage acquisitions following the $960 million purchase today of Compellent Technologies Inc. to strengthen its hand in the market against rivals Hewlett-Packard Co. and EMC Corp.
About 3.5 percent of Dell’s $15.4 billion in sales last quarter came from storage products. Dell, the world’s third-largest personal-computer maker, may seek purchases in software for managing data storage systems, Executive Vice President Brad Anderson said today on a conference call with reporters.
“The storage area will continue to be a very attractive area for us,” said Anderson. In the meantime, Round Rock, Texas-based Dell plans to keep reselling EMC’s products, he said.
HP, EMC, International Business Machines Corp., Cisco Systems Inc., and Oracle Corp. may also bulk up in the storage market as businesses look to manage increasing amounts of data, according to analysts. Possible data-management targets include CommVault Systems Inc. and Double-Take Software Inc., Jayson Noland, an analyst at Robert W. Baird & Co., said in an e-mail.
Symantec Corp.’s Veritas software may also be valuable to Dell or HP, said San Francisco-based Noland, who has an “outperform” rating on Dell shares and doesn’t own any.
Several of Compellent’s peers were acquired this year. HP, the world’s biggest PC maker, outbid Dell in September for storage company 3Par Inc. HP agreed to pay $2.35 billion, more than triple the business’s market value before any bids became public. IBM bought Netezza Corp. in November, and EMC agreed to buy Isilon Systems Inc. the same month. Storage hardware and software maker NetApp Inc. is also seen as a potential target.
‘Solid Consolation Prize’
Compellent “is a solid consolation prize for missing out on 3Par,” said Jason Maynard, an analyst at Wells Fargo Securities, in a research note today. Maynard, based in Santa Monica, California, rates Dell “market weight.”
Dell will pay Compellent investors $27.75 a share in cash, the companies said today in a statement, after announcing last week that they were in exclusive talks for a price of $27.50 a share. The purchase price is 3.3 percent less than the Dec. 10 closing price for Compellent. The stock had gained 68 percent in the past two months on speculation the company would get bought.
The price is 56 percent more than Compellent’s closing price on Oct. 25, the day before Reuters reported the company was considering options including a sale. There have been more than 50 similar acquisitions in the storage industry in the past 12 months, with an average premium of 15 percent, according to Bloomberg data. The average deal size was $64 million.
Dell is using acquisitions to lessen its dependency on the desktop and notebook market, where profit margins typically are lower. Compellent technology helps customers store, recover and manage large amounts of data.
“The digital universe is just exploding,” said Rich Kugele, an analyst at Needham & Co. in Boston, who recommends buying Dell shares and doesn’t own any. “All the devices that you and I have, and have come to rely on, generate and consume content. We all basically just expect to be able to access any of our data regardless of where we are, on any device.”
Philip Soran, CEO of Eden Prairie, Minnesota-based Compellent, said on the conference call that Dell offered employment to all of its almost 490 employees, and will retain its upper management.
Compellent fell 73 cents, or 2.5 percent, to $27.98 at 4 p.m. in New York Stock Exchange composite trading. Dell declined 54 cents to $13.36 on the Nasdaq Stock Market.
Compellent was advised by Blackstone Group LP and Morgan Stanley. UBS AG advised Dell.
Dell said in June that its data-center business, including servers, storage and networking gear, will generate $30 billion in sales by the end of fiscal 2014. That’s up from $17 billion in the year ending in January.
Compellent’s products compete with EMC’s. Dell’s purchase of Compellent will cause further strain on its relationship with EMC, said Wells Fargo’s Maynard.
Mike Workman, chief executive officer of closely held storage maker Pillar Data Systems, said Dell may be able to sell Compellent’s products more profitably than it has EMC’s.
“They’re excited about the margins you get when you own your own product line,” said Workman. Pillar competes with Dell, EMC, and others in the data storage market.
People are increasingly tapping into software and content via the Web, using so-called cloud-computing services, boosting demand for data centers that store the content.
The global market for external disk storage systems grew 19 percent to almost $7 billion in the third quarter, according to research company IDC.
Dell also is relying on research and development to expand its data-center products. The company plans to increase R&D spending on those products from a single-digit percentage of sales to 10 percent or more, Chief Financial Officer Brian Gladden said in an interview last month.
Dell had $13.4 billion in cash and short-term investments at the end of its third quarter, which ended in October.