Dell on the hunt for Israeli acquisitions

Two Dell executives met ten Israeli companies and VC funds during a visit to Israel last week.

Two Dell Inc. (Nasdaq: DELL) executives - VP strategy David Johnson and president software division John Swainson - visited Israel last week with the goal of expanding the company's presence in Israel, as the company makes the transition from a manufacturer of PCs and servers to a comprehensive provider of IT and computer solutions under the guidance of founder and CEO Michael Dell. They met with ten companies and funds to find strategic investment or acquisition targets.

"One of the first things I asked Michael to do when I joined the company was to set up R&D centers in California and Israel," Johnson told "Globes". "We cannot benefit as a brand that provides innovative solutions without having a presence that includes R&D capabilities."

Dell's need to develop technologies is seen in the expenses items of its profit and loss statements. Dell, which expects $60 billion in sales this year, spent just 1.7% of sales on R&D in the first quarter, well below the proportion spent by its rivals.

Dell's path to achieving R&D capability is well trod. The company spent 1.3% of sales on R&D in the first quarter of 2011. A few weeks ago, it launched a $100 million fund for the procurement of equipment for start-ups.

Johnson said, "We can make strategic investments and we may make them here too. We began building these capabilities in the US, and then in Europe, and we will now have these capabilities in Israel." He says he is familiar with Israeli high tech and was involved in acquisitions of Israeli companies by IBM Corporation (NYSE: IBM) during his 27 years at the company.

Dell's strategy for the Israeli market is being handled by Dell Europe. Dell Israel R&D Center general manager Yossi Ben-Shushan will also have a role.

Dell's investment strategy includes passive investments in early-stage companies with the objective of obtaining access to technology developments, and apparently options for a future acquisition. Dell's sole acquisition of an Israeli company to date was its $12 million acquisition of storage solutions developer Exanet in early 2010. The sad end of Exanet, which collapsed due to a dispute between shareholders, enabled Dell to swoop in and then establish its R&D center on the basis of Exanet's team.

The current strategic directions on Dell's agenda are mainly in enterprise computing, including storage, security, computer infrastructure management, cloud computing, business performance analysis, and technologies integration services. One Israeli company that is close to Dell - solid-state (SSD) SAN storage solutions developer Kaminario Ltd. - raised $25 million in its fourth financing round earlier this month. Johnson says that he is familiar with the company, but added, "We'll invest in companies that are the right companies to invest in."

We must make acquisitions

Strategic investments are a good way to gain access to technological developments, but the real McCoy is obtained through acquisitions. Dell has made 18 acquisitions for $10 billion since 2008, including seven software developers. The pace picked up this year, with five acquisitions in the first quarter.

Dell's software business totals $400 million, less than 1% of its total revenue, but is targeted to quintuple by 2015. "We intend to be a major player in the enterprise software field," Swainson told "Globes". "To be big, we must continue to make acquisitions."

Published by Globes [online], Israel business news - www.globes-online.com - on June 26, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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