Original URL: http://www.theregister.co.uk/2007/02/27/dell_acer_buy/

Dell could go indirect with Acer buy - analyst

Model 2.0

By Ashlee Vance

Posted in Hardware, 27th February 2007 02:34 GMT

Michael Dell could prove that "Dell 2.0" is more than a marketing throwaway by buying rival Acer, according to a leading Wall Street analyst.

Sanford Bernstein analyst Toni Sacconaghi today laid out a plan for Dell to revive its fortunes by purchasing Acer - a relatively cheap target with a $4bn market cap. Such a move would give Dell broader access to Asian and European customers, a stronger notebook line and a massive indirect sales channel. Of course, Dell would have to give up on everything it holds dear by swallowing its pride along with Acer.

Dell 1.0 rose to the top of the computer kingdom via the lean, mean "Direct Model." The company also relied on a tight research and development budget and a rejection of large, disruptive acquisitions.

This strategy worked well until 2005 and 2006 when Dell's business started to slow. The company is now trying to correct its customer service problems and improve PC and server sales under the so-called Dell 2.0 model championed by reinstated CEO Michael Dell.

Buying Acer could be a quick fix for some of Dell's issues, according to Sacconaghi.

"A combined Dell-Acer would enjoy leading share in nearly every major region of the world, strong products in both the notebook and desktop segments, and far-reaching distribution through both direct and indirect channels," the analyst wrote in a research note.

The analyst - one of the best on Wall Street - stressed that he's heard no rumblings about a Dell/Acer deal. He simply likes the idea.

In order to make the acquisition effective, Dell would of course need to lay off workers who hold similar jobs at the two companies.

With that dirty work out of the way, Dell could expand its business in Europe and Asia - "where Dell's position is relatively weaker." Dell could also gain an indirect sales channel overnight and sell more high-margin laptops.

"While we have no evidence that a Dell-Acer combination is being considered by either party, we do believe such a mvoe could make strategic and financial sense," Sacconaghi wrote. "We believe Acer could help Dell address many of the challenges it currently faces, but would represent a significant departure from Dell's historical track record of acquisitions and from its 100 per cent direct selling model."

While the Acer deal could prove effective, it would sure mess up the Dell college dorm room lore, and the company's penchant for saying the Direct Model is the answer to every problem. ®