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Dell's Extreme Makeover

When a wave of mergers swept the tech industry in 2004, Michael S. Dell promised investors they wouldn't see his computer company anywhere near a negotiating table. "When was the last time you saw a successful acquisition or merger in the computer industry?" he asked at the time. Five years later, it's a different story. Round Rock (Tex.)-based Dell is weeks away from closing its largest acquisition ever, a $3.9 billion deal for tech-services provider Perot Systems (PER). The chief executive says more deals are likely, and this won't be the end of his changes in strategy. "Everything's on the table," he says.

And with good reason. The company Michael Dell started in his college dorm and built into the preeminent personal computer maker has fallen on hard times. As the center of the tech industry has shifted from the PC to the Internet, Dell has struggled mightily to find its place. While Hewlett-Packard (HPQ), IBM (IBM), and other rivals transformed themselves in recent years by acquiring new companies and capabilities, Dell long stuck with its old playbook of cranking out PCs as efficiently as possible. It's hard to remember that in 2005 Dell was valued at $100 billion, or more than HP and Apple (AAPL) combined. Today, it's worth $30 billion, less than a third of its rivals' market values.