Dell Wants to Get Out of Its Box

If you work at a desktop computer, chances are pretty good that you've been pounding on a keyboard connected to a PC made by Dell (Nasdaq: DELL  ) , which has been instrumental in turning the desktop computer into a commodity product. But the company knows that the PC business is changing and any future success will come from expanding beyond its core business.

To that end, Dell announced on Monday that it has agreed to buy Quest Software (Nasdaq: QSFT  ) for $2.36 billion in cash. That comes out to $28 a share for Quest, 44% higher than its share price in March.

Quest produces data-security and virtual desktop products that Dell believes will work together with the technologies from other software companies it has recently acquired. Those include Wyse Technology, a Web-based software company, and Sonicwall, a security company. Other companies Dell has acquired for its IT and data-center expansion plans have included Perot Systems and Force 10 Networks.

The goal of these acquisitions is for Dell to become an enterprise-solutions company that can compete with Hewlett-Packard (NYSE: HPQ  ) and IBM (NYSE: IBM  ) . Data-center technologies, including server and storage technologies, will be the areas Dell needs to move into. Right now, more than two-thirds of Dell's sales come from its desktop, laptop, and accessories business. Storage solutions account for only 3% of sales.

Dell had to pay a premium for Quest as it bid against private venture-capital firm Insight Venture Partners, but after its losing battle for data-storage company 3Par in 2010 -- which HP picked up for $1.6 billion -- it didn't want to lose out here.

The market's initial reaction to the Dell-Quest deal saw Dell's shares drop 1%, bringing the trailing 12 months' share drop to 27%.

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Fool contributor Dan Radovsky has no financial interest in the above-mentioned companies. The Motley Fool owns shares of IBM. Motley Fool newsletter services have recommended creating a synthetic long position in IBM. 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. The Motley Fool has a disclosure policy.


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