Paul Mansky seems confident in his assessment of Dell (DELL). The Canaccord Genuity analyst wrote that with sales of personal computers waning due to the rise of tablets, the Round Rock-based company needs to make a move into networking, and should do it by buying Brocade.
After Mansky’s note was published, shares of Brocade Communications Systems Inc. (BRCD) traded at 52-week highs, rising more than 7% in excess of $7.25 last week.
Mansky noted Dell’s recent acquisitions through the last few years, pointing out that Dell has three pieces of an “IT stack” in storage, servers and services.
“Networking is the one crucial piece that is missing,” Mansky wrote. The analyst even forecasts that Dell may offer as much as $10 a share if the second-largest computer maker in the world decides it’s a profitable move to do so.
Manksy further writes that Dell “has been busily assembling a full IT stack aimed at realigning the company away from secularly less attractive legacy businesses (like PCs) and incrementally toward future growth in the enterprise.”
Mansky adds that “given networking will most likely be among the most critical source of intelligence” helping to reshape the stack, “not owning this technology puts Dell at risk of simply hopping from one commoditized business into another.”
The analyst makes some good points, as Dell is successful in cross-selling Ethernet switching with servers and storage and the company made a shelf filing for a potential $3.5B debt filing. Dell also has about $7B in net cash.
“We view Brocade as the most likely target for myriad reasons,” Mansky writes. “First is the absence of alternatives. Juniper is 80% service provider – not Dell’s business – and Extreme and Force10 carry insignificant share. Second, Brocade’s Fibre Channel business should be an attractive cash engine for at least five years…Finally, Brocade owns Fibre Channel (70% share), exceptionally tight support for which is a must (our view) in a converged world. Net, Fibre Channel is high ROI, legacy Ethernet is low investment and converged products (recently introduced) are the growth engine.”
Dell has around 14,000 employees in the Central Texas region. While no official mention of Dell buying servers has been announced, company representatives have stated that Dell wants to buy “everything around data centers.” For more on that story, read here.
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