Is Dell Planning to Go Shopping ... for Sun?

There’s plenty of evidence that Dell is planning a significant acquisition. The question is whether the target might be Sun Microsystems.

Dell is no stranger to acquiring other companies, and at the end of March in Beijing, Michael Dell mentioned some of the targets:

“We are focused on data centers, services, software, servers and storage. Those are likely areas for Dell to use its capital for nonorganic growth,” Mr. Dell said at a press briefing in Beijing. He didn’t elaborate on possible acquisition targets.

Dell also happens to be in the middle of publicly offering $500 million in notes that will come due in 2014. But consider the company’s financial picture, at least as of the end of FY2009.

Clearly the company has the money to buy something in the $500 million range if it wanted to — several acquisitions, in fact. And clearly it is getting the cash for a good reason. Why not issue more stock instead of notes? Maybe it wants stock for part of an acquisition deal.

Given its interests and current activities, could Dell be looking at acquiring Sun? There are a number of factors that would make the deal interesting:

• Dell doesn’t have the presence in the data center that it needs to get a bigger piece of enterprise business. Owning Sun would open many doors.
• Dell has been stuck in growing the way shareholders want. Open the data center door for the first time and you could jumpstart a big expansion.
• Cisco is entering the server market — a big worry. Cisco buying Sun would be an even bigger one.

There are some strong reasons for a Sun acquisition to appeal to Dell. Given that IBM just walked away from Sun, with the latter having few suitors, the cost might drop. And IBM had been only talking about $6 billion to $7 billion. The window is open for a brief period, and if Dell is going to do something, now would be the time.

Camel shopping image via stock.xchng user hawkey80, standard site license.