Dell Inc said it would buy network security products maker SonicWall from an investor group as the world's No. 3 personal computer maker tries to tap growing demand to protect corporate networks.
Dell is trying to boost profit margins by focusing on being a one-stop shop for business customers by adding products in areas including security, storage and cloud computing so it can rely less on the PC business for which it is best known.
"There's an opportunity to have higher growth margins and higher operating margins," FBN Securities analyst Shebly Seyrafi said.
This is the first deal for Dell after John Swainson took over as its software chief last week with a mandate to expand its software capabilities. Swainson said it had been in the works long before he had been hired.
Though financial terms were not disclosed, investors and analysts are estimating the purchase price to be between $1 billion and $1.5 billion.
On a conference call with analysts, Dell said it will fund the deal with cash but declined to divulge the purchase price.
SonicWall was a public company until 2010, when it was acquired by an investor group led by Thoma Bravo for $717 million.
The firm is best known for selling Unified Threat Management technologies that small and mid-sized businesses use to protect their networks from computer viruses, spam and other cyber threats.
It has recently expanded into selling more robust corporate security products known as next-generation firewalls with lots of bells and whistles that big corporations can use to monitor their workers and protect them from attack when they are using specific online applications like Facebook.
"It's a big market opportunity for anybody to get into. When you have the clout of Dell, it does make sense," said Andrew Hay, an analyst with The 451 Group.
Analysts said they expect Dell to build out SonicWall's line of products, then market them to bigger corporations and sell its alongside other products to data centers and large enterprises.
"This basically is part of the whole game plan that they have put in place, that is to acquire a key technology. They've been doing this in enterprise storage, in networking, and now they're doing this in security as well," said analyst Brian Marshall of ISI Group.
Round Rock, Texas-based Dell has been waging an uphill battle to diversify its revenue base from PCs to become a larger player in the data center equipment market and IT services. It faces stiff competition in those markets from the likes of IBM and HP .
To help that effort, it has been acquiring companies, including Force 10 Networks and Compellent Technologies, to boost its enterprise-related products and services.
Last year, Dell made a splash in the security industry by purchasing SecureWorks, which remotely monitors corporate networks to help companies identify when they have been attacked. The price was not disclosed.
Swainson said in a press call that the company would look at other acquisitions to help it expand further in security, where rivals like IBM and HP have also used deals to boost their market position.
"Our customers have consistently presented us with concerns about their security," Swainson said.
Founded in 1991, San Jose, California-based SonicWall had revenue of $260 million last year and boasts of 300,000 customers.
"SonicWall is going to contribute less than 1 percent to Dell's revenue, but they're moving in the right direction," analyst Marshall said.
The deal is expected to close within 45 days.
Centerview Partners LLC served as an adviser to SonicWall. Dewey & LeBoeuf advised Dell.
Dell shares rose 15 cents to $17.11 in afternoon trade on Tuesday on the Nasdaq.
Copyright Thomson Reuters 2012