Is Dell Wising Up With Wyse?

Iconic PC maker Dell (Nasdaq: DELL  ) keeps pushing into software and services. The company has just announced that it intends to acquire Wyse Technology, a company that specializes in cloud software and virtualization.

Wyse also makes "thin-client" hardware and software, which are like terminals that lean on other computers (like servers, for example) for most of the heavy lifting. Dell didn't break out financial details about the transaction, but analysts think it probably fell in the ballpark of $350 million to $400 million.

Dell did say that Wyse should be accretive to non-GAAP earnings by the latter half of fiscal 2013, with the deal expected to close in the second quarter of fiscal 2013.

Wyse already plays nicely with the kingpins of virtualization, Citrix Systems (Nasdaq: CTXS  ) and VMware (NYSE: VMW  ) , which should complement their respective virtual desktop infrastructures. Dell's hoping that the acquisition will help it further tap the datacenter infrastructure market, which is supposed to top $15 billion in the next three years.

The deal follows other software-driven acquisitions in recent times, after Dell formed a new software group two months ago. The company is obviously looking to boost margins and growth through differentiated services and also acquired SonicWall (security software) last month and AppAssure (backup and recovery software) in February.

The Wyse deal bears an uncanny resemblance to when Hewlett-Packard (NYSE: HPQ  ) acquired thin-client specialist and Wyse rival Neoware five years ago. Both HP and Dell have been pretty clear in recent times with their intentions to be like IBM.

HP wanted to spin off its PC business like Big Blue did long ago, while Dell keeps adding pieces to its Big Blue puzzle. It's no wonder when you look at where IBM's profit margin has been going ever since selling its PC business to Lenovo in 2005.

DELL Profit Margin Chart

DELL Profit Margin data by YCharts

IBM-esque transformations take time, and until then I still don't see a lot going for Dell. Its mobile strategy is in shambles, as Dell has killed both its domestic smartphone and tablet lineups. There's no doubt that it's trying to regroup with mobile, but the company has mostly missed out so far. While Dell is trying to be like IBM, it's a far cry away from competing, since IBM is IBM.

With more than $62 billion in revenue over the past four quarters, these incremental acquisitions are a long way from reshaping Dell into the spitting image of its Big Blue role model.

At this rate, Dell doesn't look like a stock that will help you retire rich, but these three stocks do. Everyone wants to retire rich, so take a look at this special free report while you still can.

Fool contributor Evan Niu holds no position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of VMware. Motley Fool newsletter services have recommended writing covered calls on Dell. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On April 02, 2012, at 11:56 PM, applefan1 wrote:

    Dell decision to buy Wyse kind of makes me wonder why. Citrix, which is a leader in Thin client software is trading at 42 times it's earnings, which is WAY overvalued and it is growing, but it is still not making me think that thin client is the wave of the future. They only retain about $350Mil in net profit. Hardly a big deal in the software industry. But in terms of virutualization, VM does quite a bit more, but these companies are WAY overvalued trading at 40 to 70 times their earnings. A P/E at that level is just plain overvalued. I think the virtualization/thin client model is OK for certain clients,

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