Dell’s Stock Reaches $19 By Hitting $5 Billion Software Sales Target

DELL: Dell logo

Dell (NASDAQ:DELL) is targeting $5 billion in software sales in coming years as it looks to diversify its business and add more software and services to the mix. It plans to achieve this by targeting key areas such as network security, cloud storage, systems management, business analytics, virtualization and thin client systems.

Dell expects security and systems management to be a billion dollar business in the next few years. The push into software is an attempt by the company to reduce its dependence on PCs as software and services have higher margins and the associated contracts tend to be sticky and long term. John Swainson, former chief executive of CA, is heading Dell’s newly formed software division and has laid out plans to target mid-sized companies that are under served by rivals such as HP and IBM. [1]

See our full analysis on Dell

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Dell is targeting mid-sized companies with 200-2,500 employees, which it feels is an under-served market, and it expects this market to generate $5 billion in sales in the next few years. To scale up quickly and meet demand, it has been using cash generated from its PC business to buy out companies in its areas of interest. It bought SecureWorks and SonicWall for its security business, and acquired Clerity, Wyse, AppAssure, Scalent and Kace for its systems management segment. Dell’s most recent acquisition was the $2.4 billion buy-out of Quest.

The company plans to combine hardware and software into pre-configured devices and sell them to mid-sized businesses and support them through its services arm. It also plans to sell Windows 8-based tablets with pre-installed management software to its institutional clients, making the tablets more useful for the customers.

Services and software contribute to nearly 30% to our price estimate for Dell’s stock. If software revenues touch $5 billion by 2015, as the company expects, we can expect an upside of nearly 20% to our current price estimate.

We have a $19.22 Trefis price estimate for Dell, which is significantly higher than the current market price.

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  1. Dell Pins Software Hopes on the Midmarket,, July 20, 2012 []