Dell To Buy Palm? Analyst Makes The Case (DELL, PALM)

June 12, 2009 8:49 AM EDT
Collins Stewart came out with a note speculating on whether Dell (Nasdaq: DELL) could actually buy Palm (Nasdaq: PALM). In the past few weeks, Dell has articulated that it is looking for acquisitions. It recently sold $1 billion in bonds and a WSJ article yesterday said Dell is looking to acquire for growth versus internally build new products inside the Dell operation.

Collins Stewart says a service related acquisition is unlikely to be the solution for Dell. Dell is unlikely to get an equal seat at the table for the data center opportunity with IBM (NYSE: IBM) or Hewlett-Packard (NYSE: HPQ) even with an acquisition.

Dell's initial efforts in smart phones have been met with a yawn by the carriers. Collins Stewart says the converged device arena is shaping up to be a land grab and Dell has a window to capture mind- share via an acquisition of Palm. Palm recently launched its Palm Pre device.

Collins notes that Palm does not have the balance sheet ($260 million cash) to go through an extended period of cash burn until they are able to make a profit off of the Palm Pre.

The Collins Stewart analyst said, "This acquisition will be born of mutual necessity and represent a strategic fit for both parties. Dell can afford to expend about a third of its gross cash or $3 billion for an all cash transaction. Palm falls well under this threshold."

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