There have been rumors that Dell (DELL) may feel it needs to do something with Sun (JAVA), now that Hewlett-Packard (HPQ) has cut a deal to buy EDS (EDS).
Dell may need to grow through M&A, but Sun will never be a target.
EDS helps build on a strength that HP was already expanding. Services are a large and growing portion of the HP revenue stream. In the last quarter, that operation brought in $4.4 billion of HP’s $28.8 billion in revenue. EDS augments that with another $5.5 billion to $6 billion a quarter. EDS runs an operating margin of about 6% on that.
Dell has a low-end server business and Sun markets more expensive servers. One of the troubles with buying out Sun is that companies are moving away from large and expensive servers and in the direction of the cheap servers marketed by Dell and HP. Sun’s products have become a part of a dying age of IT.
Sun also adds nothing to Dell’s operating income. The company only breaks even now, and revenue growth is at zero. Dell cannot take a lot of cost out of Sun. The operation is already cut to the bone.
Sun has enough trouble that it may not be an M&A target at all.
Douglas A. McIntyre
Take This Retirement Quiz To Get Matched With A Financial Advisor (Sponsored)
Take the quiz below to get matched with a financial advisor today.
Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests.
Here’s how it works:
1. Answer SmartAsset advisor match quiz
2. Review your pre-screened matches at your leisure. Check out the
advisors’ profiles.
3. Speak with advisors at no cost to you. Have an introductory call on the phone or introduction in person and choose whom to work with in the future
Take the retirement quiz right here.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Editors' Picks
