With Force10 Buy, Michael Dell Keeps Thinking Small
Why not Brocade? Dell has its problems, but its founder shuns the quick fix blockbuster acquisition.
Dell announced Wednesday that it will acquire networking vendor Force10 Networks for an undisclosed price. Force10 adds to Dell's server and storage product portfolio as it tries to bundle up everything a midmarket company needs to run a data center.
However, instead of buying Force10, Dell could've gone after Brocade, a bigger fish in the networking market.
Likewise, Dell earlier this year bought Compellent, a storage vendor. It lost out to Hewlett-Packard in the bidding for a larger storage company, 3Par. Back in 2004, Michael Dell quashed CEO Kevin Rollins' desire to buy storage king EMC, Rollins recently told Fortune. Dell "was worried that it would be too destabilizing for the company," Rollins said.
As Dell's sales stagnated then shrunk in recent years, it became clear that the company could no longer rely for growth on its historic base of selling PCs and servers to businesses. But Dell didn't have the broad product line to equip the entire data center, which is why it has ramped up acquisitions the past two years: EqualLogic (storage), Scalent (virtualization management), Perot Systems (consulting), SecureWorks (security services), Boomi (software as a service integration). Dell's sales are up 22% in its most recent quarter, compared with a year ago.
In doing those deals, Dell has been remarkably consistent in its strategy of buying small or midsized vendors, rather than chasing the blockbuster merger. Dell's Dave Johnson, senior VP of Dell corporate strategy, alluded to that strategy in its conference call about the Force10 deal: "We have a strong record of integrating and driving value from acquisitions of this size, which we consider to be the sweet spot for us."
Force10 fits the mold: $200 million in annual revenue, of which 80% is in North America, with about 750 employees. It had filed for an initial public offering last year to raise up to $140 million.
Dell sees how servers, storage, and networking are converging, driven largely by virtualization. Companies are trying to create data centers that act more as a single pooled resource-- a cloud -- so that they can shift workloads across infrastructure for efficiency's sake, and thus build and run smaller and cheaper data centers. Jason Maynard, Wells Fargo equity analyst, said he believes Dell can increase Force10's revenue by leveraging Dell's greater global reach and by piggybacking on Dell's server sales relationships, "as networking has a high attach rate to server units."
Force10 switches and routers support the kinds of virtualized environments companies are building. My colleague Mike Fratto of Network Computing, who has a deep analysis on Force10's technology and its fit with Dell, says that the acquisition will give Dell "instant credibility in data center networking." Fratto says he'll be watching closely how Dell integrates Force10 into Dell's cloud inititiaves. Writes Fratto:
Dell representatives highlighted three key areas: Dell's virtual network services infrastructure, which supports virtualization in the network to automate virtual machine moves, adds, changes, and management; automation from the edge, in which applications drive changes as needed; and flattening the network, with increasing port speeds and greater port density."
Dell needed to make a move like the Force10 acquisition to fulfill its ambition of a broad data center portfolio. Cisco and HP have this same vision for providing servers, storage, and networking as a single infrastructure stack. "Networking is the next key piece of the puzzle for us to execute upon," said Brad Anderson, senior VP of Dell's enterprise product group, during the conference call.
Dell could certainly find more holes to fill in its overall enterprise portfolio. It's playing from (way) behind in the smartphone and tablet markets. It'll face continual pressure to up its data center management services, as companies push for more virtualized and automated operations. Might it need more IT services firepower than the Perot acquisition brought it?
If history is a lesson, Dell won't try to plug any of its holes with a big bang acquisition. One can't help but wonder what might've been had Dell and EMC joined forces six years ago. But given the spotty record for tech industry mega-mergers, small-and-focused deals, while not a lock-in for success, look like Dell's best bet to get back on the growth path.
The Business of Going DigitalDigital business isn't about changing code; it's about changing what legacy sales, distribution, customer service, and product groups do in the new digital age. It's about bringing big data analytics, mobile, social, marketing automation, cloud computing, and the app economy together to launch new products and services. We're seeing new titles in this digital revolution, new responsibilities, new business models, and major shifts in technology spending.
Top IT Trends to Watch in Financial ServicesIT pros at banks, investment houses, insurance companies, and other financial services organizations are focused on a range of issues, from peer-to-peer lending to cybersecurity to performance, agility, and compliance. It all matters.
Join us for a roundup of the top stories on InformationWeek.com for the week of September 18, 2016. We'll be talking with the InformationWeek.com editors and correspondents who brought you the top stories of the week to get the "story behind the story."