As part of a direct push into the data-storage market, Dell Computer Corp. agreed to buy privately held ConvergeNet Technologies, Inc. for stock valued at $340 (US$) million.
The computer giant will buy the San Jose, California-based company for 6.9 million of its common stock shares. In addition, Dell will take a charge of 5 to 7 cents for in-process research-and-development expenses once the acquisition closes.
Closing is expected within 60 days.
Expanding Its Market
The purchase will enable Dell’s current and future PowerVault storage products and other storage systems to connect to any Intel — or RISC — server running UNIX, Solaris, Windows NT, Windows 2000, NetWare or Linux operating systems. Dell feels that this new ability to connect different storage systems to servers of all types puts it in a position to expand into the open-systems storage market, which International Data Corp. estimates will skyrocket to $38 billion by 2002.
“The ConvergeNet technology combined with Dell’s efficient low-cost business model will mean our customers can get leading-edge datacenter storage solutions at values unseen before in the industry,” said Michael Lambert, senior vice president of Dell’s Enterprise Systems Group.
Lambert added that the global business model would be significantly transformed by Dell’s acquisition of ConvergeNet.
The Metamorphosis of Dell
The number one direct seller of PCs first entered the storage market last year with the introduction of PowerVault. Since then, Dell has been steadily positioning itself to become a major player in the data-storage market. Industry observers feel that by acquiring ConvergeNet, Dell has been transformed from a simple computer seller into a potential e-commerce giant.
Analysts also point out the move signals the beginning of a new era for the Round Rock, Texas-based company. In the past, Dell has shied away from acquisitions, content to depend solely on its direct-sales structure. However, with today’s e-commerce centered marketplace, Dell’s action proves that it is willing to adapt to economic reality.
Michael Dell founded Dell (Nasdaq: DELL) in 1984, when he was still a student at the University of Texas. In its fiscal year ending in January, the company pumped out $1.5 billion in earnings on revenue of $18 billion.
Nearly 70 percent of the systems Dell sells are sold to government agencies and large corporations. The company, which employs about 24,400 workers, is expected to process 50 percent of its business via the Internet by 2000.
Dell’s stock has also been the best-performing stock on the Standard & Poor’s 500 Index for the last three years. However, it fell $1.75 per share yesterday, closing at $47.73.
Founded in 1997 by chief technology officer Shari Nolan, ConvergeNet was initially funded in February 1998 by Sierra Ventures, a California venture capital firm. To date, $30 million in funding has been pumped into the closely held data-storage company by Sierra and other corporations.