Dell to Acquire ConvergeNet International

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Event Summary

On September 7, 1999, Dell Computer Corporation announced its intent to acquire storage networking manufacturer ConvergeNet, in a stock swap valued at approximately $340 million. This is Dell's first company acquisition of any kind, and is designed to help Dell improve and expand its PowerVault line of storage equipment.

Market Impact

Dell has stated it wants to be one of the top three storage vendors in the world, and we believe this acquisition will help it achieve its goal. EMC's purchase last month of Data General (Dell's current supplier for PowerVault storage) complicated Dell's storage supply chain; this acquisition puts Dell in control of its own storage destiny. In addition, ConvergeNet's ability to connect storage products and storage systems to multiple server OSes (UNIX, Solaris, Windows NT, Windows 2000, NetWare, Linux) immediately expands Dell's capabilities in that area, and thus their market opportunity.

The added benefit to Dell is that it now gains credibility as a complete systems vendor. Dell has historically been viewed as a PC and PC Server manufacturer; that categorization places inherent limits on Dell's growth. To get beyond a certain level, it will need to deliver more than Intel-based PCs, servers, and notebooks. (We are not ignoring their PowerVault storage systems, but those are really only peripherals to be attached to the Intel servers - not a separate market in the manner of EMC's offerings.)

The other impact is non-technological: Dell has grown to $21.7 billion in sales solely through internally-generated growth, rather than acquisition. Although buying one company does not in itself constitute a strategic change in Dell's growth plans, it will cause a re-evaluation by the computing world (analysts, competitors, and potential buyout candidates) of how to view all of Dell's actions in the future.

User Recommendations

This announcement means a customer can now more readily consider Dell when making decisions for a heterogeneous system environment (Windows/Unix/etc.). In addition, customers have a wider selection of storage capabilities when considering Dell. This is a positive for existing and potential customers. Since the acquisition and benefits from it will not take place until the end of 1999, customers in the middle of a buy should not alter their plans. However, acquisitions planned for early 2000 should consider reviewing this new product offering during their acquisition cycle.

These products, as with existing Dell offerings, should be considered for Intel-based server computing environments, and now also for heterogeneous environments.

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