Dell building up its cash reserves for acquisition

IDG News Service - Dell plans to grow its business by acquiring another company, a senior executive said Friday.

"Michael [Dell] did talk about our desire to increase activity for inorganic growth. We have established a healthy cash position and strategically we will be looking for opportunities to do that," said Steve Felice, president of the company's small and medium business unit, during a conference call with reporters.

"Obviously we won't share those details, because we can't disclose what companies or when, but we are looking at opportunities to expand the business," Felice said.

Dell had US$9.7 billion [B] in cash and equivalents on its balance sheet at the end of its fiscal first quarter, which closed on May 1. That represents an increase of 16 percent since January 30, when the company ended its last fiscal year.

The increase in Dell's cash reserves is particularly notable for the difficult business environment that the company faced during the first quarter. Revenue fell 23 percent compared to the same period one year earlier, from US$14 billion during the first quarter of 2008 to US$10.2 billion.

There's no shortage of speculation as to what companies Dell might be interested in buying.

Some see Palm as a logical target since buying the company would give Dell immediate access to a line of smartphones -- a segment of the market that Dell officials, including CEO Michael Dell, have expressed interest in.

If Palm is a target, the upcoming Pre handset may be a principal reason. Scheduled to go on sale next week in the U.S., the Pre uses a new operating system and is seen as a potential rival to Apple's iPhone and handsets based on Google's Android operating system.

Others see rival Acer as a possible acquisition target for Dell. The Taiwanese PC maker has grown quickly in recent years, taking PC market share away from larger rivals. Buying Acer would increase Dell's share of the PC market, although there would be a fair amount of overlap across computer product lines. In addition, Acer is also building its own line of smartphones, based largely on its acquisition of Taiwanese handset maker E-Ten Information Systems last year.

While acquisitions can help companies expand into new markets or increase their market share, they are fraught with risks -- as Lenovo Group found with its 2005 acquisition of IBM's former PC division.

That acquisition was meant to vault Lenovo into a leading position in global PC markets. Instead, after seeing sales to large companies sink in North America and Europe, Lenovo instead turned its focus back to China in a bid to cut its losses.