Last Updated Aug 23, 2010 11:11 AM EDT
Dell and HP have been rivals for decades, with the two pushing back and forth to see who would become dominate. One of the big causes of the departure of former HP CEO Carly Fiorina was how Dell had grown massively, while HP sales remained flat.
Much of Dell's growth rode on consumer and small business purchases. But the company has tried to push into large enterprise sales, both by expanding its lines of servers and storage area networks and by acquiring IT consultancy Perot Systems. In other words, Dell wanted to look more like HP. In its latest quarter, Dell saw its big gains among corporate buyers.
However, both HP and Dell have seen flat sales in services and software while pressure on hardware prices continues. Because of the pressure to continue growth -- this is high tech, after all -- all the hardware vendors seek ways to expand the range of products they can sell to clients. It's why HP bought 3COM and why Cisco (CSCO) developed its line of servers and continues to expand its range of network-centric products through acquisitions.
Dell saw a chance to move further into corporate sales, although the 3PAR acquisition would likely cause serious friction with its storage business partner EMC. Not that EMC would likely be able to do anything about its irritation, as it can't afford to overly antagonize a sales channel like Dell. In addition, 3PAR has products designed for cloud computing and hosted service delivery.
HP took note and realized that if Dell acquired a higher end storage line, it could compete with better complete system pricing. Furthermore, everyone has to move into cloud computing, so HP put together a higher bid. The reason it was so much larger was to invoke a clause in the acquisition agreement that allowed 3PAR's board to consider a significantly better offer without having to pay Dell a penalty for breaking the deal.
Expect the bidding war to continue. Dell badly needs the acquisition and HP will not want to let the deal happen. Both have lots of money on hand -- Dell with $11.7 billion and HP with $14.7 billion, according to their most recent filings. It will be a matter of which perceives the greater need.
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