Dell gets the Acquisition bug

1999-09-09

Dell made its first acquisition yesterday, which clearly marks the beginning of something big. Dell’s purchase of ConvergeNet for $340M is the first step on a long road for Dell, which will see the company take on the storage market and, very likely, come away with a sizable chunk.

At the moment, Dell is saying that the move does not affect its existing partnerships. For example, the company is quoted as saying that there is “no impact in existing relationships” with IBM and Data General, who supply disk drives and storage systems respectively. Similarly, Network Appliance, whose storage appliances are rebadged by Dell and sold on, does not foresee any direct impact at this stage. As pointed out by a source from within the company, ConvergeNet are a SAN supplier (or would be, if they had released any products yet) whereas NetApp are a Network Attached Storage (NAS) manufacturer. The two models can live side by side in harmony, said the source. Fair point.

However it is unlikely that Dell will stop here. Dell already works with tens of partners, of whom ConvergeNet was one. Further acquisitions will no doubt be announced, each, knowing Dell, enabling the company to take new technologies and skills on board without causing a major impact to their operational capabilities. No doubt, they will have learned a number of lessons from watching Compaq’s purchase of Tandem and Digital – ironically, Compaq is probably Dell’s major target for competition in the storage space, just as with the PC market where Compaq will still be smarting from losing the top spot in US PC sales to its rival.

This organic approach to growth will be coupled with Dell’s world-beating sales engine, not to mention their brand. Dell will win market share in the same way that they did in the PC arena, by putting service at the top of the list and by creating a supply model which, with its rapid turnaround and low overheads, is the envy of the market. Sooner rather than later, Dell will find itself in direct competition with its suppliers and partners, with the result that some relationships will have to change. But this is unlikely to distract the new Goliath as it drives towards its goals.

(First published 9 September 1999)