Congratulations are in order for Dell
The war for growth
Dell had the right idea when it made an initial bid for 3PAR. The company has been struggling for years to find a new growth engine to accelerate earnings and with a strong cash position on its balance sheet, an acquisition made a lot of sense. Many analysts believed Dell's initial offer of $18 a share may have overvalued shares of 3PAR, but at HP's final offer of $32, the company valued 3PAR at more than three times its initial market capitalization before the bidding began.
Hewlett-Packard may not have needed to make the acquisition as badly as Dell, but it was pretty clear that they were not going to let their rival win this battle.
Dell has struggled to keep up with rivals that were once competing only for PC and server sales. However, competitors such as HP and IBM have been able to transition into more lucrative data center hardware and consulting services. Dell still derives a substantial amount of revenue from PC sales, and that is just not a viable business plan in today's world of technology. Competition has been driving down the price of PCs for years, and Dell's once-enviable made-to-order business is now not as cost efficient as outsourcing manufacturing like many of its competitors do.
An acquisition of 3PAR would have allowed Dell an easy inroad to storage segments seeing rapid growth, in part due to the continuing migration to cloud computing and advances in virtualization technology. As Dell attempts to grow its enterprise business, customers are looking for one-stop shops from technology service providers.
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Dude,where is the innovation?
So the company does have the $2 billion that it didn't spend on the 3PAR acquisition, and it also picked up a cool $72 million breakup fee for the dealings with 3PAR. Unfortunately for Dell investors, innovation is a bit of an oxymoron, so it might be difficult to expect the company to grow organically.
In the past, Dell has been able to grow through some successful acquisitions. However, the growth has not been enough to keep the company on pace with its key competitors. Dell's biggest acquisition was its purchase of consulting firm Perot Systems for $3.8 billion. While this acquisition has allowed Dell to make headway in this segment, it has not created the brand cache that would allow it to successfully take on IBM and HP.
The next step
Most believe Dell will continue the hunt for another acquisition that provides similar services as 3PAR. If Dell were to go in this direction, the path would most likely lead to CommVault Systems, Isilon Systems
Dell's best bet in the near term may be to enhance collaboration with its current high-end storage provider EMC
How do you think Dell should proceed? Building a storage server of its own would take years. Are these potential acquisitions huge reaches? Is Dell fixable? Sound off in the comments area below.
Andrew Bond owns no shares in the companies listed. Rackspace Hosting is a Motley Fool Rule Breakers choice. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.