After its third quarter results and fourth quarter outlook
drove its stock toward a three-year low,
) announced its sixth acquisition of the year. The acquisition of
privately-held Gale Technologies, unlike the preceding ones,
reflects the company's effort to shift its focus from a
PC-centric business to a more enterprise-centric service
business. Financial terms of this small but important deal have
not been divulged.
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Santa-Clara-based Gale Technologies develops infrastructure
automation software that helps customers streamline the
deployment, use and provisioning of cloud-based infrastructure.
Management of hybrid cloud computing environments gets easier
with much lower supervision and operating costs. Its blue-chip
The assets of Gale Technologies would form a division named
Enterprise Systems & Solutions. With the new division, the
tech giant is expected to focus more on the development of
management solutions for converged infrastructure, which will
facilitate the process of data center automation. Dell plans to
retain Gale's intellectual properties and to invest in
sales/engineering to reduce integration time.
Despite reporting a dismal third quarter, Dell's server and
networking revenue gained momentum with an 11.0% year-over-year
increase. In this context, it is necessary to mention that
another tech giant
) registered a year-over-year decline in server revenue. This
indicates a solid growth trajectory for Dell and we believe that
Gale will provide adequate support with its technological
know-how and rich client-base to achieve higher revenue growth.
We understand that the shift to the higher-margin enterprise
business is critical to Dell's survival and success. For the past
few quarters, Dell's financial results have failed to impress
investors and we believe that the main reason for the
disappointment is the delay in the process. But keeping in mind
the increasing demand for cloud solutions and Dell's performance
in its Enterprise business, we believe that the company has the
potential to turn around as soon as the acquired units start
generating material revenues.
Currently, Dell has a Zacks #5 Rank (short-term Strong Sell
rating), reflecting its lackluster fourth quarter view, falling
share prices and a weak PC market. But we would like to turn
investor attention toward another server vendor,
Cisco Systems Inc.
), which has a Zacks #2 Rank (short-term "Buy" rating),
reflecting its first quarter 2013 earnings beat.