SiliconBeat

Last last year, in my annual prediction column, I included one far-out, wacky suggestion: Cisco Systems would buy Dell.

Though admittedly a long shot, my rationale was that Hewlett-Packard was moving into networking with its purchase of 3Com. That made it a direct competitor with Cisco. Both companies want to fight for big corporate customers, but HP has an advantage by simply being bigger. Though PCs are a dicey business, the best way for Cisco to level the playing field would be to buy Dell.

I’ve put that out of mind until the last few weeks when a series of events got me thinking that it could make sense. And now there’s a twist: Could Oracle be interested in Dell? I posted a short thought about this on Facebook yesterday after Oracle officially announced it was hiring Mark Hurd, the ousted CEO of HP. They now have a co-president with extensive experience running the largest PC maker in the world. Imagine what Hurd could do with Dell? And what delicious revenge it might be for him to take on HP in the PC business?

A year ago, I would have never thought about Oracle buying a PC company. But now that they’ve done the unthinkable and plunged headlong into hardware by buying Sun Microsystems, how much crazier would it be to see them buy Dell? In fact, yesterday, Quentin Hardy of Forbes also mused about the possibility of Oracle buying Dell:

“The last big Oracle buy was Sun Microsystems. At the time, people liked the software Oracle got from that deal, but wondered what to do with the hardware. Sure, it could sell high-performing Sun servers loaded with Oracle database and application software, but at what acquisition cost?

That deal makes more sense if Oracle adds to its hardware offerings with a comprehensive desktop and laptop offering. Dell has that, along with servers, storage, and a little network switching. More important, it has extensive corporate relations in selling to different parts of a corporate base than Oracle now touches.”

The company in the middle now is Dell. Following their loss in the 3PAR bidding, they are a wounded duck. They have a market cap of $24.4 billion, and annual revenue that fell last year to $52.9 billion.

By comparison:

• Cisco has a market cap of $117.4 billion and annual revenue of $36.1 billion.
• HP has  a market cap of $82.9 billion and annual revenue of $114.b5 billion in 2009.
• Oracle has a market cap of $120.4 billion and annual revenue of $26.8 billion.
• Microsoft has a market cap of $206.23 billion and annual revenue of $62.5 billion.
• IBM has a market cap of $158.5 billion and annual revenue of $95.8 billion.

I mention Microsoft only because of something Oracle founder Larry Ellison said a few years ago when he predicted the IT industry would consolidate. Ellison said there would be a handful of giants left at the end of the day, including Microsoft, HP, IBM, and a couple others. (I don’t remember the exact list, but I think there were five).

In any case, he wanted to make sure Oracle was one of the few giants left. And so he said Oracle needed to acquire large numbers of companies to boost its revenues and size to keep pace with companies like Microsoft. Being bigger would allow the company to spread costs such as R&D over a wider base, Ellison said.

That rationale remains as true today as it was then. Dell, first and foremost, needs to get much larger to remain competitive with HP. The fastest way to get there is acquisitions. But we’ve seen that Dell doesn’t have the resources to go toe-to-toe with HP. In fact, HP could simply starve Dell by outbidding them time and time again.

No, the best option for Dell at this point is to be acquired. But by which company?

HP probably couldn’t buy Dell without getting hung up on anti-trust issues. But if Cisco bought Dell, you would have a company with close to $90 billion in annual revenue, a number that significantly closes the gap with HP. And if Oracle bought Dell, you’d have a company with more than $60 billion in annual revenue, still only about half HP’s revenue, but closer.

Over at Silicon Valley Watcher, Tom Foremski wondered whether Oracle might buy HP:

“Yes, it is a big pill to swallow however, it would enable Larry Ellison, CEO and co-founder of Oracle to perform an end run in the massive global IT market and also leave a substantial legacy on his upcoming retirement.

If there is one thing we know about Larry Ellison is that he is motivated by big goals. Is this one too large for him?”

While I see Tom’s logic, I still find this scenario to be unlikely. Oracle has a lot of money, but it would probably need to make a hostile, all-cash bid for HP, which would be way too expensive. It would have to borrow massive amounts and take on big debt. Oracle’s stock wouldn’t be that attractive to HP shareholders, given that until the last couple months, Oracle and HP stock prices have tracked pretty close together:

However this plays out, expect lots of drama over the next few months. There’s no love lost between these companies. And with the economy stagnant, big players have clearly decided that acquisitions are the way to grow.

Who is the happiest man in Silicon Valley today? It has to be David Scott, chief executive of 3PAR. If he’s not the happiest, then he’s at least the guy who has made the most money in the past month thanks to the over-the-top bidding war for his previously obscure company.

According to a proxy filing in July 2010, Scott owned 2,923,468 shares in 3PAR, or about 4.6 percent of the company’s stock. On Aug. 13, those shares closed at $9.65 per share, making them worth $28,211,466.20.

Cue the bidding war. Dell threw in the towel on Thursday after Hewlett Packard offered to pay $33 per share. That makes Scott’s shares worth $96,474,444. That’s a nice 350 percent return in about three weeks.

The other big winners:

• Mayfield Fund holds 2,992,752 shares, about 4.8 percent, worth $98,760,816.
• Menlo Ventures holds 9,371,361 shares, about 15 percent, worth $30,925,4913.
• Worldview Technology Partners holds 8,382,058 shares, about 13.4 percent, worth $276,607,914.
• FMR LLC holds 7,643,890 shares, about 12.2 percent, worth $252,248,370.

The news (or at least the leaks and rumors) surrounding Palm seem to be only getting worse. Today, reports have emerged that Asian wireless companies HTC and Huawei declined to bid on Palm. The speculation now is that Chinese PC maker Lenovo is the front runner.

At the same time, Palm CEO Jon Rubinstein insisted the company could remain independent. In an interview with the Financial Times, Rubinstein suggested Palm might license its WebOS, the mobile operating system that runs the Palm Pre and Pixi, to other companies. But how much would you pay to license an OS from a company that seems caught in a death spiral?

No, it seems a sale of some sort is more likely. When you start blaming your partners for your troubles, as Rubinstein did in the FT piece, things aren’t likely to improve any time soon. Palm has Goldman Sachs and Frank Quattrone’s Qatalyst Partners on the case to find a buyer. And I have to believe there has to be a price at which Palm would be valuable to someone.

After all, Palm has a solid mobile operating system, although it’s struggled to attract developers to match the applications ecosystems of Apple’s iPhone and Google’s Android platform. But I’m guessing in part that developers are reluctant to jump in with two feet and create things for a company with such an uncertain future. A sale to someone with deep pockets could turn that around.

Here are my thoughts about who is left in the running, or should be:

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The PC market is coming back strong, according to new research released today by Gartner and IDC. But HP and Dell, the leading US manufacturers, are losing share to their Asian rivals.

Worldwide PC shipments were up 27.4 percent in the first quarter of 2010, compared with a year earlier, according to Gartner. IDC pegged the year-over-year increase at 24.2 percents, still exceeding expectations.

HP remains the world’s leading seller of PCs, with 18.2 percent of the global market by Gartner’s count and 19.7 percent according to IDC. Both firms estimate that HP shipped almost 20 percent more units than a year earlier, while still losing a little under one percentage point of market share.

Acer, by contrast, was in the No. 2 position with 14.2 percent of the world market, up from 11.7 percent a year earlier, according to Gartner. IDC’s report gives Acer 13.6 percent of the market, up from 11.9 percent.

Both research firms are reporting that Dell’s share of the market also slipped a bit, while Lenovo, Toshiba and ASUS showed gains from a year ago.

IDC and Gartner each use slightly different methods of estimating the market, but their numbers usually track pretty closely. One difference this time: Gartner reported Apple gained almost a point of market share in the United States, while IDC reported Apple lost ground slightly.

Back on Sept. 17, Palm released its long-awaited earnings. They were eagerly anticipated because these would be the first full quarter that included the performance of the Palm Pre. Ever since, analysts and investors have been trying to figure out whether the numbers were good news, bad news, or something else entirely.

This head scratching was reflected in the news coverage of the earnings. The Mercury News had a first-day headline that said “Pre Sales Give Palm A Boost.” But within a couple of days, the consensus seemed to turn against Palm, with analysts and others questioning just how good the numbers were, and worrying about the company’s outlook. Four days later, the Motley Fool wrote: “Palm Discovers Its Limits.”

The confusion was largely due to a change in accounting methods. More on that in a second. But once we take a closer look at the numbers, it seems clear to me that Palm seems to be setting itself up to be sold. And that would likely need to happen sometime in the next six to 12 months.

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Here’s more evidence that netbooks are still a growth product: A new report from DisplaySearch, a unit of the NPD Group research firm, says netbook shipments grew at twice the rate of regular laptops (40 percent compared with 22 percent) from the first quarter of this year to the second.

As a result, the report says, netbooks now account for one out of every five laptops shipped in the last quarter. Netbooks went from about 6 percent of total laptop shipments in the second quarter of 2008, to 22 percent in the second quarter of 2009.

In addition, the report says, “Asus, the pioneer in mini-note PCs, has been steadily losing share because Tier 1 brands like Acer, HP, Dell, Lenovo and Toshiba have become increasingly aggressive in this shipment.”

While the continued popularity of these low-cost, down-sized “mini” notebooks is good news, in one sense, some are concerned that they are contributing to a broader decline in prices and profit margins for companies that make and sell computers, chips and software.

HP, for example, reported that its notebook revenue was down 10 percent for its most recent quarter, even though it sold 19 percent more units than last year.

Watch for a story in the Merc about a new line of laptops and processors that some believe are intended to shore up sales of traditional notebooks.

Intel offered up some good news yesterday with its second-quarter earnings yesterday, reporting signs of an uptick in consumer demand for PCs. But executives tempered their optimism by saying they’re not counting on so-called “enterprise” or business customers to increase their buying significantly in 2009.

CEO Paul Otellini said he sees an eventual upside from the fact that many companies have not replaced their employees’ desktop or laptop PCs for three or four years.

 “At some point, those need to be refreshed,” he said, adding that businesses may decide to buy new computers after Microsoft releases its new Windows 7 operating system. But he said he doesn’t expect to see those sales pick up before 2010.

On another somewhat upbeat note, Otellini touted the development of new ultra-low voltage processors for the consumer market, which he said are designed to help PC makers create a new segment of ultra-thin but full-function notebooks. These are aimed at consumers who want portability but also want to do more than access Web-based services on a netbook.

Phoenix Technologies, which creates “core system” software for PC makers, was evidently scooped by Dell on news that the PC maker would be offering Phoenix’s theft-protection technology in one of its new laptops.

In a report filed with the Securities and Exchange Commission late Friday — missing the 5:30 p.m. deadline for posting on the Security Exchange Commission’s Web site by about four minutes — Phoenix said that Read the rest of this entry »

In the battle over image, Mac once again out-cools PC.

In a new Forrester consumer satisfaction report, the Cupertino company outscores its PC rivals – by a long shot.
In an analysis by Forrester Vice President Bruce Temkin, Apple came out on top in a survey of  five computer brands – Apple, Compaq, Dell, Gateway and Hewlett-Packard. The Forrester customer experience index gathered responses from more than 4,500 U.S. consumers about their experiences with major companies.

Apple had a  “good” rating of 80 percent. Compaq, HP, and Gateway, on the other hand,  garnered good ratings between 63 percent and 66 percent. Dell, meanwhile, came in with an image-bashing  “poor” 58 percent rating.

Ouch!

Dell landed with a thud in the most un-fun-to-use category. Maybe that’s why companies love to outfit their employees with Dells so much – the bosses sleep better at night knowing their workers aren’t enjoying themselves.
Apple led the pack when it came to ease of use – 17 percent better than the PCs. And consumers apparently would rather while away their time with a Macintosh computer. Apple garnered a 15 percent higher score than the others when it came to being enjoyable.
Temkin summed things up this way: “The Windows ecosystem needs an extreme customer experience makeover.”

In addition to the $3.5 million signing bonus Dell gave Ron Garriques when he was hired to be president of its global consumer group in February 2007, the computer maker also agreed to give him a restricted stock grant every year that was to be worth six times his annual base salary of $700,000 every year through fiscal 2012. It also promised him $3 million in cash that was to be paid out in three equal payments over three years from his original hire date.

Just over two years into his employment, he and the company entered into a “Retention Bonus, Merger and Modification Agreement” that gives him $2 million outright in exchange for Read the rest of this entry »