Dell aims to create $5 billion software business

Dell Inc's new software chief plans to increase the size of the business five-fold, a target that could eventually account for at least 25 percent of the No. 3 personal computer maker's profits.

John Swainson, the former chief executive of CA Technologies who joined Dell in February, said software is a higher margin business than most of the company's other units, but is not big enough to make a difference right now.

Dell has been actively diversifying its products and business away from personal computers, a market whose growth is slowing as Apple Inc's iPad and other mobile devices pull customers away. The company has said it sees software and services as key growth areas.

Swainson wants Dell's software business to make a "meaningful contribution" to its bottom line.

"As you get to a number like $5 billion, it starts to become a meaningful number on the bottom line," he told Reuters in an interview. "If you were at $5 billion software business with 30 percent margins, that would be roughly $1.5 billion in net income."

Dell's software business currently generates about $1.2 billion of its $ 60.2 billion annual revenue.

Swainson did not give a time frame for when he hopes to achieve the target revenues, but said the $2.4 billion acquisition of Quest software was one of the building blocks to getting there.

Software is one part of the Round Rock, Texas-based company's strategy to transform the corporation from just a PC company to a one-stop shop for all the IT needs of corporations.

But the company has been lagging larger rivals such as Hewlett-Packard Co and International Business Machines Corp in the race to become the preferred vendor for corporate information technology needs.

Acquisitions that broaden its offerings, such as IT services company Perot Systems and security company SonicWall, have underpinned Dell's diversification plan.

Dell, however, is not planning to buy any more software companies of Quest's size in the near-term, but will continue to "actively" look for good buys, Swainson said.

The company is also focusing on emerging markets for growth. Chief Executive Officer Michael Dell said earlier this week he remains upbeat about areas such as China, its largest market outside the United States, despite "challenges" and a business slowdown.

Copyright Thomson Reuters 2012