(DELL) Dell Looks at Strategic Growth Strategies

Dell Inc. (DELL) is slowly adopting different strategic measures to improve its business. Apart from acquiring new companies to access new technologies and customers, the company is also witnessing a flow of customers from EMC (EMC) and NetApp (NTAP) legacy storage products to Dell storage arrays.

This new program will help the company to provide the cash credits and attractive lease terms for customers dealing with EMC CLARiiON CX, Celerra and VNX, and various NetApp FAS systems and will also help in upgrading the new Dell Compellent and EqualLogic modular storage arrays.

The company has simplified the transition for customers with the help of specialized migration services, award-winning ProSupport and Copilot support and other financial incentives such as Dell Financial Services leasing options.

The company is now planning to build its first data center in India. This is in line with its plan made last year to spend $1.0 billion to build 10 new data centers, which will help the company to capitalize on the burgeoning popularity of cloud computing.

Moreover, with the acquisition of SonicWall the company has entered into the world of network security. The need for highly scalable and flexible network and information technology security across different industrial sectors has prompted consolidation in this area. The most noteworthy of these were Intel Corp.’s (INTC) acquisition of McAfee Inc. and Hewlett-Packard Co.’s (HPQ) acquisition of ArcSight Inc.

With inputs from SonicWall, SecurityWorks and KACE, Dell will be able to expand its Security-as-a-Service offering and enable customers to easily access reliable, capable and innovative information security to fight frequent and severe cyber attacks.

Apart from storage, Dell has also expanded its networking capabilities with the acquisition of Force 10 Networks in July 2011. Overall, we notice that the tech giant is becoming a more comprehensive provider to the enterprise segment. We believe this approach is exactly what Dell needs to compete against the likes of Cisco Systems Inc. (CSCO) and Hewlett-Packard.

The company has reported modest fourth quarter results, with earnings per share (EPS) declining from the year-ago quarter and revenue improving marginally on a yearly basis. Though the PC maker has provided a weak sequential guidance (due to hard disk supply disruption), we believe growth prospects for fiscal 2013 remain strong.

Dell’s focus has shifted from traditional PCs (low margin business) to high-margin cloud-computing. Exposure in the Electronic Medical Record sector, entry into the smartphone business, and high cash generation ability are positives for the company. However, mediocre operating performance is a reason for concern. This apart, stiff competition from other tech majors such as Hewlett-Packard Company, Apple Inc.and Acer may pose some challenges to the company.

Currently, Dell has a short-term Buy recommendation, as indicated by the Zacks #2 Rank.
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