December 5, 2007 4:56 pm

Dell could eye Motorola unit, Attachmate, others to boost growth, sources say

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Dell, the No. 2 US PC maker, could use its cash to acquire listed Motorola’s handset business, private Attachmate or other companies, industry sources told mergermarket.

The moves would strengthen the listed Round Rock, Texas-based Dell in its turnaround, especially after CEO Michael Dell, a greying 42, said the company he started at 19 might need more than organic growth, industry bankers said. Dell last week reported USD 14.6bn in cash and investments as of 2 November.

At its delayed annual meeting Tuesday, Dell announced a USD 10bn share buyback over an unspecified period, its first since an equivalent buyback announced in March 2005. CFO Donald Carty declined to provide details.

Dell announced USD 106m in acquisitions in the third quarter. Last month, it announced the USD 1.4bn purchase of private EqualLogic of New Hampshire, which specializes in storage, as well as the purchase of private Everdream of California, a developer of software for remote-service management, for an undisclosed amount.

CEO Dell sketched “clear priorities” in consumer products, emerging countries, notebooks, small and medium business and enterprise products, noting the company was at the “dawn of a connected era” for computing and communications.

Industry bankers said that could indicate Dell wants to compete with listed Apple’s iPod and iPhones. Motorola’s handset business might be a fast entry into the market said one veteran technology banker, especially because Dell’s consumer products head, Ron Garriques, headed it until a year ago. Dell’s former CFO, Tom Meredith, now holds the same position at Motorola.

Motorola shareholder Carl Icahn last week repeated demands the Schaumburg, Illinois-based company be split into parts after CEO Ed Zander announced his sudden retirement this month. Zander, who will stay on as chairman until next May, was replaced by president and COO Gregory Brown. Both Motorola executives said they were committed to keeping the company together.

For the first nine months, Motorola’s mobile devices sector reported an operating loss of USD 813m compared with income of USD 2.35bn a year earlier. Nine-month revenue dropped 31% to USD 14.2bn.

A Dell “mobile appliance” could make the company a rival to Apple, as well as listed Research in Motion of Canada, maker of the BlackBerry. Dell would seek to leverage its current enterprise customer base in computers and servers with a compatible Dell “mobile appliance,” according to another industry source. Finland’s listed Nokia, the No. 1 mobile phone maker, on Tuesday announced an alliance with France’s listed Universal for a music service to compete against Apple’s iTunes.

Another Canadian target could be listed Absolute Software, developer of products that secure and track laptop PCs and allow data to be erased if they are stolen. Dell is one of its customers. In a recent interview, CFO Rob Chase, said the company could be a target, although it would more likely be a software player such as listed Microsoft of Symantec.

Following on Dell’s plans to focus on simplifying technology, industry sources also suggested private Attachmate of Washington, which specializes in configuration and compliance software, or smaller, listed NetManage of California, might be attractive. Attachmate, which acquired NetIQ for USD 495m last year, is owned by Golden Gate Partners, Francisco Partners and Thoma Cressey Bravo and has annual revenue exceeding USD 250m.

NetManage, with a market capitalization of USD 35.2m and enterprise value of USD 9.5m, develops software that allows enterprises to move legacy applications to the Internet. Shareholder Riley Investment Management Tuesday, in a regulatory filing, demanded the company be auctioned because it is undervalued. A year ago, Riley launched a bid for NetManage that later lapsed.

Meanwhile, with most of its cash offshore, Dell insiders said in earlier interviews they expected future acquisitions could come in emerging markets, especially after the company announced huge gains in international sales in countries like China, India, Brazil and Russia, compared with only 6% growth in US sales. Targets could include pieces of India’s listed Infosys group or the Buynow unit of Taiwan’s listed Clevo or private Hisap of China because both have sales and services presence in Chinese markets.

Dell shares were flat at USD 23.72 Tuesday after the buyback news, giving the company a market capitalization of USD 53.03bn.

Calls to Dell were not returned.

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